Global fund managers say equities will have a tougher time in 2006, lagging the double-digit gains of 2005, according to a new study.
In its annual Fearless Forecast, Mercer Investment Consulting surveyed investment managers at 157 companies around the world who oversee more than US$20 trillion in assets. They were asked for their global and regional views on the economy and capital markets.
They survey found that fund managers believe global equity markets will end 2006 with median returns of 7.6%, below the 9.5% gain in the MSCI World index in 2005 and well below annualized historical returns of 19.3% for the index over the past three years.
The biggest slowdown is expected among the 26 countries that make up the emerging markets, where returns are forecast to drop to an average 9% from a 34% jump in 2005.
Markets in Europe, Australia and the Far East are forecast to have a median return of 8% in 2006, compared with a 13.5% return in 2005. The U.S. is the notable exception, a region where stocks are expected to improve on 2005’s 5.1% return to a gain of 7.5% in 2006, bringing it more closely in line with the performance of developed markets in Europe, Australasia and the Far East.
In a majority of regions, investment managers surveyed by Mercer said pension funds expect to increasingly turn to alternative investments, generally by less than 5%. This shift is expected to be more pronounced in the U.S., where nearly 60% of investment managers said they expect to increase their exposure to alternative investments by 5% to 15%, if not more.
The alternative classes that pensions funds are expected to favour are private equity funds, single-manager hedge funds in Australia and the United States, real estate in Singapore and the United Kingdom, as well as commodities in Europe and the United States.
The Mercer survey revealed that Canadian pension funds were the only ones not to list hedge funds as one of their top three alternative investments.
Canadian managers are also planning to invest more in infrastructure funds.
In terms of economics, fund managers surveyed expected global real gross domestic product will jump by 3.1% in 2006. Singapore is expected to show the fastest growth at 5%, followed by the U.S. at 3.5%. Australia is seen growing 3.3% and Canada 3%. Europe is forecast to have the slowest economic expansion at 1.9%.
Survey respondents expect inflation to remain at 2005 levels or a little lower, with the highest predicted inflation rate of 3% in the U.S. and Australia.
Global fund managers see positive returns for stocks in 2006
Single digit returns likely for most global indices
- By: IE Staff
- January 9, 2006 January 9, 2006
- 17:15