Managers predicted equity crash

Fund managers interviewed only a week before equity markets collapsed predicted consolidation or a rise, according to the latest World Management Indicator from Natexis Asset Management. More than half of fund managers (52 per cent) contacted by Natexis predicted consolidation in equity markets in 2007. Of the 180 European and US managers interviewed, 43 per cent predicted sustained growth, and only 3 per cent a significant drop. Ideal portfolio allocations to equity were fairly stable, with the high risk allocation going up 1 per cent from December, to 63 per cent, and the medium risk allocation dropping one per cent to 46 per cent (see figure two). Despite the collapse, Philippe Waechter, head of economic research of Natexis Asset Management maintains that the predictions remain, in general, on track. “What we see is a first high pick up in activity and, specifically, no recession expected in the US and Europe,” he says. “Growth expectations for Europe are at their peak.” According to Mr Waechter, the US market is likely to do worse than anticipated by respondents, more than a third of whom (34 per cent) were optimistic about the market, up from only 20 per cent in December. Only 12 of interviewees were pessimistic. However, even in the US he expects the negative effect to be temporary, as no recession is anticipated. In the remaining markets, he sees optimism as largely justified, as markets pick up again, although with perhaps some drag on performance from lower US growth. Confidence about European equities reached a three-year high in the survey, at 70 per cent, and only 3 per cent of managers were pessimistic. “There are strong employment and investment figures in Germany,” Mr Waechter says. “We can expect strong activity. That’s the new thing for 2006 and probably 2007 as well.” More than half of interviewees (53 per cent) described themselves as buyers of European equities, and only 8 per cent as sellers. Three quarters of managers interviewed were enthusiastic about Asia ex-Japan, and 58 per cent (up from 48 per cent in December) described themselves as buyers in the market. Japan reversed its negative trend, in terms of manager confidence, with 56 per cent of managers optimistic about the region – the first rise in optimism since December 2005. More than half (52 per cent) of managers described themselves as buyers of Japanese stocks, up from only 32 per cent in December. The survey showed rising confidence overall in emerging markets, with 68 per cent of managers optimistic, up from 60 per cent in December and a 44 per cent low in June 2006. Latin America was the favourite, with 53 per cent optimistic. More than half (52 per cent) of respondents were optimistic about Eastern Europe, and 35 per cent optimistic about the Mediterranean countries.