Continued uncertainty about a conflict with Iraq may mean risk-averse investors keep away from shares. Also continued tensions between America and Europe may harm economic co-operation between the countries.
Most managers were concerned about America’s record current account deficit which recently hit $435 billion (£270 billion) for 2002. Nearly three quarters of
managers said it was a serious problem for the global economy. A further 10% said it was very serious problem while 14% said it would have no effect.
Many critics say that America may have trouble attracting $1.5 billion in foreign investment each day to keep the deficit stable. Three consecutive years of falling share prices are likely to make it more difficult to attract foreign capital.
Despite these concerns nearly all of the managers surveyed had some confidence in America’s ability to drive global growth over the next year. Some 79% had some confidence in America as the growth engine for the world; 11% had a lot and only 10% had none.
Market predictions
All but 3% of managers said global stockmarkets would be higher in a year’s time. Some 45% said 5-10% higher while 38% said at least 10% higher.
Though managers were positive this is a more moderate view on stockmarkets than at the same time last year. Back in February 2002 61% of managers expected returns of 5-10% and 33% said 10% or more. Over the last year the index in question, the MSCI World, fell over 20%.
Managers were more accurate with their choice for the best performing currency. Last February some 71% said the euro would outperform which has proved correct. The euro was also the most favoured currency this February, with 75% saying it will be the strongest currency over the next year.
Some 44% chose the dollar as their bet for the worst performing currency in the coming year. The yen followed with 37%.
Commenting on style and sector preferences, Niklas Tell, the editor-in-chief of Morningstar in Europe, said: “Uncertainties, ranging from geopolitical tensions to global economic growth, seem to have led fund management groups to larger companies and more defensives investments.”
Over half of managers said large firms would outperform small ones over the 12 months. Only 8% favoured small companies while 40% were neutral.
Sector favourites
Some 25% of managers said healthcare would be the best performing sector over the next year. Telecommunications came second with 15%, though this was a steep drop from January when it came top with 32%.
Energy, financial services and industrial materials (which includes aerospace & defence, building materials and chemical manufacturers) tied for third place with 13% each. Managers were less conclusive about what will perform worst over the coming year.
Consumer goods (which includes companies involved in cars, consumer electronics, drinks and food) came top of the worst list with 19%. Hardware followed with 18%. Then came energy and media tied at 11%.
Managers expected Asia excluding Japan to offer the best chances for outperformance over the next year. Some 42% of managers chose this region while 26% chose America.
Equal proportions of managers, 25% each, said Europe excluding the UK and Japan would perform worst over the next 12 months. Sentiment for Japan improved, dropping from 43% in January, while it worsened for the European region which was previously at 15%.
Morningstar’s European offices conducted the survey from February 12th-21st. The participants, 64 fund management groups from 12 countries, on average managed €57 billion (£34 billion) and offered 83 retail funds each.
