The ‘Monday Morning Musings’ report of October 11 by Citi analyst Tobias M Levkovich throws light on the results of their latest quarterly institutional investor survey.
Institutional investor survey findings
About 70 clients participated in the survey and here are some of the key findings:
- Approximately 50% of the respondents felt the S&P 500 (INDEXSP:.INX) would close higher than 1,800 in 2014, 35% thought it cross 1,850 while only 5% said it was likely to close lower than 1,650. About 60% thought that a 20% rally was more likely than a 20% fall in the equity markets.
- Most investors would like to avoid yield-oriented sectors, preferring instead growth sectors such as IT first, and then Financials or Industrials. Accordingly, over 60% thought ‘growth’ stocks would outperform ‘value’ stocks, while the same percentage said small caps would do better.
- Obviously, the budget deficit/debt limit shenanigans in Washington have not cut much ice with these investors, and they remain bullish on stocks. Over the next year, however, the majority thought that Republicans would dominate the House, while Democrats would rule the Senate. According to Citigroup Inc. (NYSE:C), this “suggests that there is a respectable probability of continuing DC budgetary conflict in the next couple of years.”
- Surprisingly, most respondents thought European equities would outperform both U.S. and EM equities in 2014.
- The U.S. Dollar would strengthen next year, said a huge majority of respondents. U.S. GDP growth would be 3% or more next year (50% respondents). Gold prices could be flat, while WTI oil would price between the range $90-$100.
- Most respondents said 10-year UST yields would cross 3% next year, while only 5% of respondents thought yields would be below 2.5%.
- Cash as a percentage of AUM is showing a downward trend to 7.4% compared to 8.2% in the previous survey in July.
- Over 75% of respondents thought earnings growth estimates of 11.3% for 2014 were too high, and considered 6.6% to be a more reasonable number.
According to Citi, “the survey should not be used as a contrarian signal in that institutional investors may want to position themselves away from consensus views but for the past six or seven years it has been better to follow the pack and not fight it.”
Region-wise equity expectations
But here’s a chart from a survey conducted by Credit Suisse Group AG (NYSE:CS) last year showing region-wise equity expectations from “largest and arguably most impressive repertoire of keynote speakers, who shared their wisdom from stock markets, politics and e-commerce to the origins of the cosmos”: As one can see, Europe is not high on the list, showing the rapid change among investors towards the continent (whether psychological, fundamental, or most likely, a mixture of both), over the past few months.
On the other hand, here are YTD absolute regional performance figures as per SocGen in their recent report Global Equity Arithmetic of October 7, 2013:
Emerging Markets: (-4.5%)
One can see that there is a very substantial variation between expectations and the reality.