Sentiment towards Europe has been steadily improving, and there is now a firm consensus among high net worth European investors that this will be the year that the eurozone as a who;e finally turns around and starts growing again. A JPMorgan survey of 914 European clients representing more than $100 billion in combined net worth found that 95% expect Europe to grow this year, centered around 1% GDP growth.
“Tail risks have subsided and the continent is going through a transitional phase, from recession to modest growth,” writes Cesar Perez, JP Morgan chief investment strategist for EMEA. “Growth in 2014 is likely to peak at around 1.0% – 1.5%.”
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
European investors like European equities, alternatives
Most of the investors surveyed intend to increase their investments this year (75%) after years of high allocations to cash which cost some of them rewards as risk assets took off last year. 54% think that equities will be the best performing asset class this year, followed by more than 30% who expect alternatives to outperform stocks. Investors were slightly more bullish on Europe than the US, with 39% saying that it would be the best performing equity market (30% named the US). What’s probably more surprising is that 15% of investors expect EM to outperform other regions compared to just 12% who named Japan.
With interest rates still very low, and rising at least in the US, only 5% of the investors thought that fixed income products would do well this year. Among fixed income products, extended credit (high yield, peripheral debt) was by far the most popular product, but it’s a sign of how little enthusiasm there is for the entire asset class that 11% of investors expect cash to outperform.
Geopolitical risk, end of QE displace fears of slow Chinese growth
High equity valuations and the threat of deflation are both on European investors’ radar, but their two biggest concerns are the Fed’s exit from QE and geopolitical shocks, pushing slow growth in China completely off the list (it was viewed as the biggest risk for markets six months ago). The survey didn’t break down which political risks have investors up at night, but tension between Russia and Ukraine must be a significant part of its jump to the top of the list.
“If markets were to rally further ahead of the economic recovery and earnings growth this year, there is a risk that valuations might overshoot,” writes Perez. “We are prepared to take profits incase markets stray too far from their fair values.”