Declining confidence leads investors to trust cash, rather than commodities
Published 19/05/2011 | 05:00
GLOBAL investors have tempered their optimism about the US and world economies and plan to put more of their money into cash and less into commodities over the next six months, a Bloomberg survey has found.
Almost one in three of those questioned say they will hold more cash, while 30pc intend to reduce investments in commodities, according to a quarterly poll of 1,263 investors, analysts and traders who are Bloomberg subscribers.
Both results were the highest since the survey began asking the question last June.
Forty per cent expect oil prices to fall in the next six months, the first time respondents have felt that way since the inception of the poll in July 2009.
The "big stimulus game is over," said Bill O'Connor, founder of Sagg Main Capital hedge fund in New York, in explaining why he is moving money into cash as the Federal Reserve winds up its bond-buying programme and US lawmakers look to cut the budget.
Fewer than four in 10 of those surveyed described the US and global economies as improving -- down from about 50pc who felt that way back in January. US economic growth slowed to 1.8pc in the first quarter of this year, down from 3.1pc in the final three months of 2010. Home prices fell in more than three-quarters of US cities in the first quarter of 2011, according to the National Association of Realtors.
The poll, conducted last week, also found that investors' ardour for stocks was cooling. Two in five intend to increase their exposure to equity markets over the next six months -- down from almost three in five at the time of the last poll in January.
US investors, in particular, have become less keen on stocks. Just 37pc say they are increasing their exposure, down from 57pc in the previous poll.
The survey was taken after a turbulent week in the markets that saw commodity prices suffer their biggest decline in more than two years. The Standard & Poor's GSCI Total Return Index of 24 commodities dropped 11pc last week, led by a 27pc collapse in silver prices.
The gauge fell 3.9pc on Monday and a further 0.9pc by 9.29am yesterday in London. Crude oil fell below $100 a barrel in New York trading on Monday.
More than half of those surveyed expect silver prices to fall further in the next six months. Sixteen per cent identified commodities as one of the markets that will suffer the worst returns over the next year, more than double the proportion that said that in January.
Commodities have "become a bubble, with a lot of non-specialist investors," said Ken Welby, a salesman at KNG Securities LLP in London and a poll participant. "Demand cannot cope with the price rises that we have seen."
While the attractiveness of the US is ebbing, it still comes out on top when survey participants are asked to name the best countries to invest in. Thirty-one per cent cited the US as among the markets that will offer the best returns over the next year, down from 37pc in January.
US investors are more enthusiastic about their country than those in either Europe or Asia. Almost two in five Americans picked the US as a top market. Only one-third of Asians and less than a quarter of Europeans felt that way.
Brazil and China trailed the US in the poll, with one in four investors citing those countries as good places to put money.
Fifteen per cent singled out Japan, almost double the amount that did so in January, before the country suffered a devastating earthquake and tsunami that left 24,837 dead or missing as of May 7 and cratered its stock market.
"We have confidence that the Japanese are addressing the issues and that earnings will not disappoint the market," Mr Welby said. "I see it as a relative-value trade."
More than two in five investors see Japan's Nikkei 225 Stock Average rising over the next six months. That compares with about one in four who said that back in January.
The Nikkei average yesterday rose 45.50, or 0.5pc, to 9,864.26. That's down from 10,254.43 on March 11, the day of the earthquake.
Investors have turned less optimistic about other stock markets, however. Less than half see the Standard & Poor's 500 Index rising during the next six months; in January, almost two-thirds forecast an advance. About one-quarter in the latest poll say they expect the stock gauge to fall. The S&P 500 fell 1.1pc to 1,342.08 on Monday in New York.
"US stocks will have a 5-8pc decline in the coming months," said Joe Larizza, a director at Vining Sparks IBG in Memphis, Tennessee, and a poll participant.
He added: "I see energy and food prices causing a drag on the economy."
Global investors still consider equities to be among the most lucrative places for their money, with more than one in three forecasting that stocks will provide superior returns over the next year.
Asian investors are the most confident in their regional economy, with 42pc saying it is improving, compared with 31pc of US poll respondents and 26pc of Europeans who feel that way about their areas.
Half of global investors forecast that the MSCI Asia Pacific Index will rise over the next six months, down from 58pc in January.
The European Union was seen by the most respondents as one of the markets offering the worst returns over the next year, with 38pc singling it out. That is little changed from January.
The turmoil-racked Middle East ranked second-worst, with about one in four investors describing it that way, up from less than one in 10 in the last poll.
About one in three investors see the Euro Stoxx 50 Index and the FTSE 100 Index rising in the next six months. That compares with more than 40pc who forecast advances in January.
More than half of those surveyed forecast that the dollar will strengthen against the euro over the next three months.