Some other color on investor sentiment – Morgan Stanley

Well, another broker, another view on how investors in Europe currently assess the financial markets right now… from Morgan Stanley, here are the summary of their « Investment Seminar »…

« High risk appetite 

74% of investors chose equities as their preferred asset class for the N12M, the same score as last year. However, the skew around other questions suggested an increased level of optimism relative to a year ago. For example, 58% of investors are OW risk assets compared to 14% who are UW. Within the former category 22% are significantly OW/long risky assets compared to 6% last year. 

Falling out of love with US stocks? Despite having a record number of US attendees at our conference this year, only 5% thought that the US market would be the best performing region over the next 12m. In all our years of attending conferences we have never seen such an extremely low reading for US stocks. Europe polled best as investors’ preferred region for the second year running and its weighting rose to 46% this year from 31% last year. EM (ex China) came in second place with 24% of votes. 

Room for upside surprise on European growth 

78% of attendees thought that Euro Area GDP growth will be between 1% and 2% in 2016. It is striking that more people think GDP growth will be below 1% (12%) than above 2% (10%). We are considerably more positive than this consensus, forecasting 2.2% GDP growth next year. 

No Grexit… This year at least 

When polled on the likely outcome for Greece this year, 45% believed a bailout would be given and 47% expected capital controls that would not lead to subsequent grexit. While no-one expects Greece to leave the EU-bloc this year, confidence starts to wane over the longer term with 36% of attendees believing that Greece is unlikely to be a member of the EU bloc on a 3-5 year timeframe. 

More people like banks than own them 

51% of our audience believe that financials will be the best performing global sector over the next 12m, predominantly at the expense of defensives and commodities that polled just 5% each. When asked specifically about the prospect for European banks over the next year, 72% of clients think the sector will beat the market (with 23% expecting it to significantly outperform). 

However, in contrast to the 72% who think the sector will outperform only 46% of our audience is currently overweight. In fact, more are significantly underweight the sector (18%) than are overweight it (13%). This suggests that Banks are not yet a crowded position and it was also noteworthy how few Financials were pitched in the stock picking session. 

Fed moves in September – world goes on 

While a number of clients expressed general concerns around the impact on stocks from higher bond yields/rates, our polling suggested a more benign outcome. While 57% of the audience believe the Fed will raise rates in 3Q15 (and a further 13% voted for 4Q15), few expected bond yields to go materially higher – over half of the audience expects US 10Y yields to be between 2.5% and 3% in 12m time. Other questions suggested that investors believed growth would have a bigger influence on macro and equity performance than monetary policy. 

Tentative pick-up in interest for commodities 

Commodities were the second most favoured asset class for the next 12m, however with 10% of the vote relative to equities at 74%, this likely represents a paucity of other options. Just 5% of the audience thought that commodities would be the best performing sector over the next years. 

However, it does appear that investors are being drawn toward commodity-related stocks given their low valuations. When asked for their current view on the mining sector the highest vote went to « getting interested/doing the work ». 

China equities expected to go up or down a lot! 

We enjoyed a good two-way debate on the outlook for Chinese equities (that are up 140% in the last year). When asked about likely performance over the N12M a third of the audience expected the A-Share market to be down 25% or more (this was the most popular answer). However, in discussion, the point was made that asset bubbles don’t usually deflate when there is widespread concern about such a bubble – usually the top occurs when ‘new paradigm’ type arguments are made, explaining why it isn’t really a bubble! »

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