- Optimism about growth has decreased significantly as investors increasingly expect euro area and Chinese issues to disrupt markets, according to the Barclays Capital Global Macro Survey, which captured the views of 862 institutional investors in June. Last quarter, the two asset classes that were widely viewed as being most attractive were commodities (with 41% of responses) and equities (31%), both of which tend to perform well when growth is robust but central banks are not tightening aggressively. Bonds, which tend to rally as growth fears increase, received less than 20% of the responses. In our June survey, the responses to the question asking which was the most attractive asset class were much more evenly distributed, with commodities now seen as the least attractive asset class (15%) and bonds gaining a little more than 30% of the votes.
- Uncertainty has increased, as evidenced by the fact that responses were evenly distributed about many of the questions we asked, not only about the most attractive asset class. For example, we gave three candidate answers to the question of how China was likely to affect global markets and all three responses received between 32% and 35%. This uncertainty is reflected in the amount of risk being taken this quarter: 40% of clients are running a light or very light amount of risk relative to capacity, up from 31% last quarter.
- US policy is seen as no big deal, with investors across all asset classes expecting little impact. It is easy to understand the lack of confidence in growth or very widespread views given the many risks facing the global economy at present. But US monetary policy does not seem to be seen as a particularly large one. Among credit respondents, over 70% of answers suggested that the end of QE2 would have limited impact across credit markets. Nearly 80% of equity investors see no change in trend until the Fed actually tightens policy (either by shrinking its balance sheet or raising rates); only one in eight EM investors and fewer than 10% of equity investors think that it is the biggest downside risk; among FX investors, the most widely held view is that US monetary policy will have no effect because it is already priced in. US fiscal issues appear to be even less of a worry to global investors. Fewer than 2% of EM investors see them as the biggest threat, possibly because fewer than 4% of fixed income investors think that the US Treasury would miss a coupon payment. The fiscal problems appear to be, at most, a tail risk.
BARCLAYS CAPITAL
ECONOMICS RESEARCH