Political and capital markets turmoil in the second half of 2011 has left money managers significantly more cautious about the prospects for economic growth and investment returns in 2012, according to Towers Watson.
A global survey, conducted in late 2011, of chief economists and investment committee executives at money management firms with combined assets under management of more than $9.5 trillion showed expectations for gross domestic product growth and equity market returns this year were down sharply from comparable forecasts for 2011.
Amid the general gloom, however, the survey showed relative optimism about the resiliency of economic recovery in the U.S., with expectations of an 8% return for equity markets there exceeding a 7.8% forecast for China and developed market returns of 7% for Australia, 6% for the eurozone and 5% for both Japan and the U.K.
Expectations for the U.K., by contrast, worsened markedly, with that country cited as among those likely to fall into recession during 2012. The relative drop in the expected return for U.K. equities, to 5% from 10% the year before, was the biggest among the leading developed markets.
In a telephone interview, Carl Hess, global head of investment at Towers Watson, noted that in terms of what survey respondents are focusing on now, “the baton's been passed” from financial sector developments in previous years to the role of governments.
While conceding that U.S. growth may be improving now on the strength of tax incentives and support from the Federal Reserve, Mr. Hess said it remains an open question whether those efforts will succeed in sparking a self-sustaining recovery.
Mr. Hess said amid continued market uncertainties, Towers Watson would “caution investors, particularly pension funds, against taking on more risk, even in light of ongoing market rallies.”