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Barclays Survey: Geopolitics Bigger Investor Concern Than Macro Risks
By Kitco NewsTuesday June 24, 2014 9:45 AM
(Kitco News) - Investors in general see geopolitical events as a bigger risk to markets than Federal Reserve tightening, have become more upbeat about economic growth and inflation and prefer growth-linked assets, Barclays said Tuesday.
The bank listed these as some of the key findings in its survey of 941 global investors.
“Thirty-five percent of investors believe that geopolitical developments are the most important risk to financial markets over the next 12 months,” Barclays said.
By contrast, in the last two surveys, investors previously thought Chinese and emerging-markets growth, coupled with Fed monetary policy withdrawal, were the main risks, the bank said.
“This suggests that surprises on the macro front – e.g., growth, inflation or monetary policy -- could be more damaging than commonly perceived,” the bank added.
Meanwhile, Barclays said, investors are becoming more upbeat about prospects for economic growth and inflation.
“About 40% believe that growth surprises are likely to be positive, and most think they are likely to come from the U.S.,” Barclays said. “Investors’ perceptions of deflation/inflation risks have also shifted. Most investors now believe inflation to be a bigger risk than deflation, the opposite of the last two surveys.”
The mood is slightly less upbeat for Chinese growth, Barclays added. Most investors still expect growth to be around 7% to 7.5%, but about 30% now see it below 7%.
The survey shows an increasing preference for growth-linked assets.
“Commodities are now seen as the best-performing asset by close to 20% of investors, up from less than 10% at the turn of the year,” Barclays said.
Emerging market stocks are now seen as the most attractive investment by 26% of investors, a major swing from the first quarter, when only 9% thought they would outperform other regions. Also, growth-linked equities are seen as the favored equity sector.
Overall, equities are “still the preferred asset class by far,” Barclays said, favored by close to 50% of investors.
“Regarding regional equity performance, the survey shows that Europe and EM are the markets with the best prospects, followed by the U.S.,” the bank said. “In terms of sectors, most participants expect global growth beneficiaries to perform best over the next three months.”
Among commodities, 70% of investors look for the energy complex to outperform, while only 10% see industrial metals or other complexes outperforming. Nearly half think Brent crude oil will be $111 to $120 a barrel by the end of third quarter, but only 12% look for it to be above $120, suggesting that investors do not envision a huge oil spike, Barclays reported.
“The main driver of energy prices in Q3 is expected to be geopolitical developments, whereas the most cited downside risk was a China slowdown,” Barclays said.
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The U.S. dollar remains the consensus long position in the foreign-exchange market, while the consensus short has shifted from the Japanese yen to the euro, Barclays said. The outlook for the euro versus the greenback was bearish, with 85% expecting the cross to be $1.35 or below by the end of 2014, compared to $1.36175 as of 9:11 a.m. EDT. Forty percent look for the dollar to be above 105 yen by year-end, compared to 101.902 Tuesday morning.
According to the survey, most investors expect the first Federal Reserve hike in interest rates to occur in the second quarter of 2015, broadly in line with market expectations. Also, most do not see the need for inflation, as measured by core personal consumption expenditures, to rise above the Fed’s 2% target for the first hike to occur.
“Meanwhile, however, they also see Chair (Janet) Yellen as a major influence in keeping rates low relative to the views of the rest of the FOMC,” Barclays said.
By Allen Sykora of Kitco News; asykora@kitco.com
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