Separate manager surveys released today indicate divergent levels of optimism on the economy within just a few months.
Fund managers surveyed earlier this month by Bank of America Merrill Lynch are scaling back growth expectations and retreating to cash amid an expected slowdown in the economic recovery of Europe and China.
Meanwhile, a Towers Watson survey of investment managers conducted at the end of 2009 showed they anticipate a 10% return on global equities this year, up from a prediction of 6.7% a year earlier.
In the BofA Merrill Lynch survey, 51% of European respondents expect Europe's economy to grow over the next 12 months, down 23 percentage points from January, and 45% of European respondents expect the European Central Bank to increase interest rates in 2010, up 26 percentage points from January, according to a BofA Merrill Lynch news release.
Global cash balances increased to 4%, up 0.6 percentage points from January.
“Investors are questioning whether this is a pause in growth or a trend reversal. We believe it's the former,” Gary Baker, head of European equities strategy at BofA Merrill Lynch Global Research, said in the news release.
In the Towers Watson survey, managers expected Asian equity markets to return 14.5% in 2010; U.S., Australian, Japanese and eurozone equity markets all to return 9% in 2010, and U.K. equities, 8.5%. Equity volatility for 2010 ranges from 15% to 22%.
“The overall picture we get from this influential group is one of recovery, with established Western markets lagging the emerging markets on most measures,” Carl Hess, global head of investment at Towers Watson, said in a news release.
Towers Watson respondents were bullish over the next five years on emerging markets at 87%; public equities, 74%; commodities, 71%; private equity, 49%; high-yield bonds, 46%; real estate, 43%; and hedge funds, 40%.
In the BofA Merrill Lynch survey, 7% believed China's economy would continue to grow in 2010, down 44 percentage points from a month earlier. The move followed the country's decision to increase Chinese banks' reserve ratio requirements.
European respondents also shed themselves of bank holdings in January, with more than 53% underweight bank stocks, compared with 16% underweight in January.
“What's happened in Greece has prompted questions about banks' lending positions and exposure to other peripheral economies,” BofA Merrill's Mr. Baker said in the news release. “There's also a fear that banks' cost of capital will rise.”
BofA Merrill Lynch surveyed 200 fund managers, while Towers Watson surveyed 98 investment managers.