Despite these positive views just over a quarter of managers said they intended to increase their weighting in Japanese shares. Some 63% said they would hold their current position while 11% planned to reduce their holdings.
Generally the survey participants were much more enthusiastic about
the prospects for the rest of Asia. Over 60% said Asia excluding Japan would be the top performer over the next 12 months. Emerging Europe was the second most favoured with 10%.
Britain remained out of favour for the second consecutive month though its position improved slightly. Some 29% said it would be the worst performing region over the next year, down from 41% in September. Europe excluding the UK followed with 27%.
Though fund managers were critical about the prospects for Europe’s stockmarkets they said the euro would be the top currency over the next year. They have also become increasingly pessimistic towards the American currency.
Some 81% said the dollar would be the worst performing currency over the next 12 months, down from 60% in September. America’s enormous current account deficit has led many market analysts to say its currency must fall to try to redress some of the imbalance.
Sectoral preferences
Fund groups expected the utilities sector to be the worst performer over the next year by a wide margin. Some 45% said it would be worst followed by hardware with 14%. Industrial materials, financial services and healthcare were expected to be the top performing sectors with 21%, 15% and 14% respectively.
Slightly more managers said that large companies would outperform smaller firms in the coming year. This would be a reversal of a recent trend which has seen smaller firms do much better than their larger counterparts in countries such as America and Britain.
Some 43% said growth firms would outperform compared with 18% who favoured value companies. Looking at the stockmarkets as a whole over half of managers said shares, as measured by the MSCI World index, would rise 5-10% over the next year while 34% expected increases of 10% or more.
There was a reduction in expectations for higher returns. In September 39% had said the index would rise 10% or more. Looking at the year-on-year figures managers were also less bullish on the global stockmarkets, although this year they were starting from a higher base. In October 2002 some 52% had expected returns of that level.
Over half of managers surveyed said equity [share] funds will dominate new fund launches in the next 12 months. This asset class has soared back into favour over the past two months. During the beginning of the year more conservative areas such as fixed income or balanced funds topped the list. In October only 5% said fixed income funds were the most likely to be launched. Some 22% said balanced funds.
Nearly three quarters of managers said short term – one to three years – fixed income instruments would outperform long term ones. Corporate debt was much preferred over government bonds by 86% to 14%.
Morningstar’s European offices conducted the survey from October 15th – 23rd. Some 61 fund groups from 12 countries participated. On average they each managed €67 billion (£46 billion) and offered 86 retail funds.
