Cash On Sidelines, But ‘Pamplona Rules’ As Investors Look To Equities


Citi unabashedly says that favorites named in its quarterly poll of institutional clients have tended to do well ever since they started doing the survey work about eight years ago.

The latest Citi survey, “Investor poll Indicates Pamplona Rules,” by analysts Tobias M Levkovich, Lorraine M Schmitt and Christina Wood shows that top-level investors such as pensions, mutual and hedge funds are bullish on equities based on optimistic expectations of US GDP growth and S&P 500 (INDEXSP:.INX) earnings, and are waiting in the wings to deploy cash in stocks.

US GDP; S&P 500 target and earnings

“Indeed, the vast majority of the Street envisions GDP growth in the US to exceed 2.5% this year (see Figure 3). Consequently, they foresee the S&P 500 (.INX) rising to a weighted average 1,939 (see Figure 4), sharply above their October estimate of 1,806 but still about 2% below our 1,975 target,” says Citi’s survey report.

1-gdp-sp500-target Cash

The bullish view on the index is supported by an optimistic expectation of 2014 S&P 500 (INDEXSP:.INX) EPS – expected to grow 8.1% in 2014 versus 6.6% in the October 2013 survey.

2-sp500-earnings Cash

Equities in pole position

The bullish basis above translates well into intent.

A solid 60% of respondents felt that the chances of the market moving up by 20% were higher than its falling 20%.

That’s not all: an overwhelming 90%+ of the respondents said that equities would receive fund allocations during 2014.

3-fund-alloc Cash

Cash is king…for now

“Cash positions have built, with average cash as per cent of assets under management surging to 11.3%, a level unseen since 2010, up from 7.4% in October and 8.8% last year at this time (see Figure 9) despite a much higher market and thereby loftier level of assets,” say the Citi analysts. “In this context, there appears to be plenty of buying power on any pullbacks.”

4 cash in hand Cash

Taken together with the leverage available to hedge funds, as well as $9T of household savings that could potentially channel into stocks, Citi feel that there is plenty of firepower poised to enter the markets in the event of a meaningful correction.

“It would seem that portfolio managers are looking to time their entry into markets with new cash which we consider wise as volatility is expected to return in 1H14,” comments Citi on the survey result.

The asset class beauty parade

Not surprisingly, a majority of respondents (between 25% and 30%) felt US and European stocks were the investments of choice, and emerging markets, once a darling of the markets, were preferred by only 10%+ of the participants.


About the Author

Saul Griffith
Saul Griffith is an investor in stocks, commodities and forex, writing under a pen name. Saul has top accounting qualifications and extensive experience in industry and the financial markets. He also has an abiding interest in breaking news that could be a harbinger of new trends and give insight into an instrument’s potential for providing value, growth or yield.