Investment managers expect further growth in the U.S. economy and do not expect that problems in emerging markets will spread to developed markets, according to a quarterly survey conducted by Northern Trust.
The survey of approximately 100 managers, taken March 4-19, found that only 11 percent of managers believe that financial market volatility and a slowing rate of economic growth in emerging markets create a significant risk of contagion for developed markets. A large majority – 89 percent – said there is only a small to modest probability (under 25 percent) that emerging markets challenges will spread to developed markets. Also, 79 percent of investment managers believe that the weak U.S. economic data reported in recent months is temporary, and expect stronger numbers to return in the second quarter of 2014.
“Managers are wary, but still optimistic, with a positive view of U.S. economic fundamentals,” said Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust. “Managers expect U.S. GDP, corporate profits, housing prices and jobs to continue to improve, and that confidence appears to outweigh their concerns about geopolitical risks like the Ukraine-Russia conflict and the slowdown in emerging markets’ economic growth.”
As in the previous quarter, managers are positive regarding U.S. economic fundamentals: over the next six months, 89 percent believe job growth will remain stable or accelerate and 97 percent expect steady or accelerating U.S. GDP growth, while 95 percent of respondents believe corporate earnings will increase or remain stable over the next three months. In addition, 73 percent of managers expect housing prices to rise up to 10 percent in the next six months, as compared to 66 percent with that view last quarter.But fewer managers than last quarter anticipate an increase in interest rates: 48 percent expect rates to rise over the next three months, versus 66 percent in the fourth quarter. Most managers, 67 percent, expect inflation to remain the same, while 33 percent expect a rise in inflation over the next six months. The vast majority of managers – 90 percent – are in line with their historical cash positions. A sizeable minority of managers, 27 percent, were more risk- averse in the first quarter than previously, while 63 percent reported no change in their risk aversion compared to three months ago. About 70 percent of investment managers believe market volatility as measured by the Chicago Board Options Exchange’s Volatility Index (VIX) will increase over the next six months, a slight increase from 64 percent in the fourth quarter