Morgan Stanley (NYSE:MS) held its 17th Global Investment Seminar on June 6-8, which was attended by 35 institutional and hedge fund investors. One of the takeaways was that 76 percent of the audience believed that European equities are the preferred asset class to own in the next 12 months. This is the highest reading since 2006. Also, 49 percent of our audience chose Europe as the best performing region for the next 12 months, which is also the highest percentage since at least 2006. Over half of the audience expected a double digit return in the MSCI Europe over the next 12 months, and participants were not concerned about high risk levels. In fact, 67 percent of the audience stated that risk levels are considered normal.
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Source: Morgan Stanley Research
Regarding sectors, investors preferred cyclicals and financials for the next 12 months. Within financials, the audience expected bank shares to outperform in the next year. Commodities are the least preferred sector, with only 3 percent of the audience expecting it to the best performer for the next year.
Audience Expects European Equities To Outperform
The audience expects European equities to outperform despite the weak economic growth backdrop. 61 percent of seminar participants believe European GDP growth will stay below 1 percent for the next year. Only 4 percent of the audience expects negative economic growth in 2014. Regarding the likelihood of the United Kingdom (UK) exiting the European Union (EU) within the next 5 years, only 16 percent of the audience considered that a strong possibility. 52 percent of participants believe the UK will stay in the European Union for the next 5 years and 74 percent of participants thought an exit from the EU by the UK will be detrimental to the UK’s economy.
Note that 49 percent of participants think that European economic growth is most likely to surprise on the upside (relative to consensus expectations) in the next 12 months. Regarding further European Central Bank actions, 38 percent of the audience thinks that the ECB will cut the deposit rate into negative territory but this move is unlikely to spur bank lending. There was no consensus among the audience on whether the ECB will take on quantitative easing.