Fund managers have turned significantly more cautious about the prospects for world growth and investment returns, according to a global survey of investment managers conducted by global professional services firm Towers Watson. The findings are in contrast to last year’s survey when managers expected the recovery to remain on track and were bullish on public equities and emerging markets.
Naomi Denning, Managing Director of Investment Services for Asia Pacific at Towers Watson, says investment managers have shifted from expecting a continuing path to recovery and the avoidance of a double-dip recession in some markets, to anticipating a more volatile and patchy period defined by increased levels of risk, some growth and significantly lower returns.
"Their optimism from last year, and the year before, is replaced by a less sanguine view about investors’ propensity to take risk in 2012, with managers’ significantly reducing the returns they expect from risky assets. A further indication of the change in sentiment from the past two years is their view that most economies are expected to have significantly lower growth in 2012 than they had expected in prior years,” says Denning.
The managers expect U.S. economic prospects to continue improving, although slower than the historical average, while Japan is expected to recover from last year’s tsunami-induced recession to maintain moderate growth in the next few years.
While most managers expect China to grow at a slower pace, albeit robust and sustainable, some suggest that it may retreat modestly in terms of economic competitiveness. Many managers view the U.S. as the region with the most rewarding investment opportunities in 2012.
“While there are some positive economic signals coming out of the U.S., driven largely by government policies such as tax incentives to help consumers and the Fed’s highly accommodative monetary policy, these cannot continue indefinitely," says Denning.
Denning adds that if the U.S. economy doesn’t develop some of its own momentum and unemployment doesn’t reduce, 2012 and 2013 could be very challenging particularly as much of the current stimuli would have run its course.
"The policies are clearly intended to stimulate growth and address the massive U.S. fiscal deficit, however, they bring considerable political, and some inflationary, risk,” warns Denning.
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