Survey shows almost 50% of respondents expect at least one country to exit the eurozone in the next 12 months
The second annual BNY Mellon-sponsored survey conducted by the Economist Intelligence Unit (EIU) has found that almost half (47%) of respondents believe that we will see the exit from the euro zone of one or more peripheral countries in the next 12 months, and only 17% of survey respondents consider theEU among their top markets for asset price growthpotential in the next 12 months. Meanwhile, the EIU identifies an oil price spike, tied in part to tensions over Iran's nuclear programme, to be the main obstacle to global growth.
A survey of some 800 institutional investors and corporate executives drawn from 77 different countries, The Search for Growth: Opportunities and Risk for Institutional Investors in 2012 examines investor views about the prospects for growth across a range of asset classes, sectors and regions. According to the survey, global investors feel moderately optimistic about growth prospects over the next 12 months, in large part to the apparent stabilisation of the European debt markets, which is buying time for EU member states to engineer an economic recovery. But opinions among survey respondents and interviewees vary widely according to region - especially given the dramatically different growth prospects of emerging Asian and euro zone countries.
"The attitudes and perspectives of institutional investors globally, and how those sentiments are changing from year to year, are obviously a key focus for BNY Mellon. By combining the thorough quantitative analysis of the EIU with our own insights around where and how financial assets are moving and being allocated, we are able to better understand how organizations and businesses are thinking about risks and challenges in this post-crisis economy," said James Palermo, vice-chairman and CEO of Global Client Management at BNY Mellon.
Speaking at Economist Conferences' Bellwether Europe summit in London today, Cynthia Steer, Head of Manager Research and Investment Solutions at BNY Mellon Investment Management, discussed how south-south trade relations are redrawing the financial map of the world. "I believe we are on the verge of a revolutionary new chapter in emerging markets investing, as burgeoning trade relations between developing countries create a new South Silk Trade Route," said Steer.
The EIU research found that, while investors appear buoyed by recent events, the fundamentals of the global economy have not improved significantly, and new risks have arisen to replace older ones. Following the stockmarket rally that opened 2012, the survey begs the question whether investors are pinning too much hope on what appears to be just a slight respite in financial markets. Survey responses indicate that investors believe the principal risks the market will face in 2012 relate to geopolitical events rather than strictly market-based developments.
Key findings from the report include the following:
Investors see some opportunities in global financial markets - among surveyrespondents, 85% perceive significant opportunities, although 51% acknowledge that there are major downside risks. The easing of the European debt crisis, coupled with a somewhat better economic performance in the US, has created a more stable outlook for financial markets - though this relief may prove to be short lived.
Geopolitics rather than market forces will govern the outcome in 2012 - hopes for furtherimprovement hinge less on economic activitygenerated by the private sector than ongovernments' ability to play their geopolitical roles properly. The Economist Intelligence Unit's forecast still places the threat of an oil price spike, tied in part to tensions over Iran's nuclear programme, as the main obstacle to global growth.
European investors are more optimistic than the global aggregate about the euro zone's future - almost half (47%) of survey respondents agree that an austerity plan would be likely to collapse in one or more peripheral euro zone countries, prompting the exit of one or more in the next 12 months. But less than one-third (29%) of European investors think this scenario is likely.
Investor sentiment echoes grim forecast for the euro zone - only 17% of survey respondents consider theEU among their top markets for asset price growthpotential in the next 12 months. More than 60%expect the euro itself to decrease in value--theworst projected performance for any currencycovered in the survey and a dramatic turnaboutfrom 2011, when 53% of respondents expected theeuro to appreciate.
Low levels of capital investment temper opportunities - less than half (45%) ofrespondents think that businesses will increase capital investment in 2012. Respondents from the US, where the economy is slowly improving, appear slightly more optimistic, while the majority of eurozone-based respondents expect to see capital investment decrease or remain the same as in 2011.
Slower growth in China and India shifts attention to smaller emerging economies - smaller economies are likely to benefit from demographic trends as well as economic or political factors. Forty percent of respondents based in the euro zone consider South-east Asia as offering the best potential for asset price growth, the second most highly selected region or country.
Positive opportunities in the wings - over half (58%) of respondents say that a breakthrough in broadband technology that makes mobile computing more widely accessible is likely; and 66% say that this would have a positive impact on their portfolio.