It is the responsibility of the ECB to keep inflation across the euro-zone countries below 2%. Since 1999 the inflation rate was above that ceiling 24 out of 45 months, according to Legal & General Investment Management.
Inflation rates vary significantly across the region. In Greece, Ireland and Portugal inflation is hovering around 4% or more while in Germany, the largest euro-zone economy, it is closer to 1%.
On a positive note for the region, over one-thir
d of managers said that Europe excluding the UK will be the top performing market over the next year, up from 18% last month. Sentiment for Asia excluding Japan plummeted 30 percentage points in October, leaving the region in second place at 24%. The area is heavily dependent on the economic and market outlook for America.
Managers shied away from Latin America. Over half expected it to be the worst performing region over the next year. Uncertainty concerning the outcome of winner of the Brazilian presidential elections on October 27th has affected the region. Luiz Inacio Lula da Silva, the candidate from the left-wing Worker’s Party, is ahead in pre-election polls.
The European currency remained strong in the managers’ eyes. Some 64% said the euro would be the top performing currency over the 12 months. Preference for the euro fell slightly from 69% in September and around 80% over the summer months. The dollar followed with 24%.
Nearly three quarters of managers said the yen would be the worst performing currency over the next year. About one quarter of managers also said that Japan would be the worst performing market over the same time period. Recent promises for reform made by the Japanese government do not appear to have made an impact on the managers’ view of the country.
Risk avoidance
Manager sentiment indicated that investors are not increasing their appetite for risk though more managers believe shares will outperform other asset classes.
Some 41% of managers said fixed income funds will see the biggest net inflows of investment. Balanced funds were second, followed by equity [share] funds. The proportion of managers who expected money to flow most heavily into equity funds fell 11 percentage points in October. Yet 83% of managers said equity funds will perform best over next year.
Guaranteed funds – those funds offering an element of capital protection – will dominate new fund launches according to 43% of managers. Conventional funds followed with 24%.
Managers were split as to which asset class would dominate fund launches. Balanced and equity funds tied for the top spot with just over one third each while fixed income funds were close behind.
Over half of those surveyed said the global stockmarkets will be at least 10% higher in the next year. Some 37% said markets would be 5-10% higher while only 3% expected a fall.
In terms of sectors financial services and life sciences were the favourites for the best performance over the next 12 months. Natural resources fell from its top spot in September to only 16% in October. Managers said the property and technology, media and telecoms sectors were likely to provide the worst returns.
Managers were generally uncertain as to whether a growth or value investment style offered the best chances for outperformance. A slight bias towards growth stocks emerged though over half of managers were neutral on the question.
Some 45% of those questioned said large firms would outperform small ones. Only 14% favoured small firms.
