Tuesday, January 15, 2013

15/1/2013: CFA Survey 2013: cautious optimism, equities exuberance?


CFA Institute annual survey of economic conditions was published yesterday and here are some core snapshots (full study available here):

Expectations change in favor of economic expansion:
 Interestingly, continued stronger optimism in EMEA as opposed to APAC, weaker optimism in APAC than in AMER, and EMEA as the core driver for growth expected. Another interesting point, although consistent with path dependency, is continued stronger growth expectations for Advanced economies as opposed to the Developing ones.

Euro area crisis continuation is the largest source of overall risk to global capital markets, at 37%, followed by concerns over economic conditions. CFA Members were divided on their expectations concerning the euro area crisis, with 23% expecting crisis easing, 35% expecting worsening and 42% expecting crisis conditions to remain at the levels of 2012. In other words, 77% expect no improvement in the euro area. An interesting snapshot into both path dependency of forecasts and anchoring of expectations is that most optimistic responses came from worst hit countries: Spain (53% expecting improvement) and Italy (46%), as well as from two countries least impacted: France (43%) and Germany (43%). Least optimistic countries are all outside the euro area: Russia (45%), UAE (41%), the US and Singapore (both at 39%) and S. Africa (38%).

Optimism about local economy expansion went up, slightly, from 42% in 2012 to 45% in 2013.
 The following chart plots the % of members indicating the biggest risk to their own local market in 2013.

And on Asset Class performance, equity seems to be king, as I predicted some time ago on foot of the long term decline in debt and liquidity over-supply globally:
Overall, 50% of respondents expect equities to provide highest total expected return, up on 41% in 2012. Asia Pacific region led in equities outperformance expectations (41% in 2012 on 30% in 2012). Cash saw a significant drop in expectations.

No major surprises then: the balance is between continued and ameliorating crisis, plus liquidity surplus sloshing into equities. The former is yet to play out, the latter has already begun.
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