Expectations

Summary of managers’ expectations

Equities

Global equity markets continue to be roiled with uncertainty as a result of falling home prices, deteriorating labour markets, increased borrowing costs and high oil and input prices. Despite reports of declining consumer sentiment in the US, surveyed investors are more bullish this month than last, with over 60% believing that US equity share prices are poised for a rebound. This contrasts with the results for Japan, where the prediction is for price stability in the face of a BoJ statement that economic growth is slowing. Sentiment in the euro-zone had the most pronounced change this month as investors were much less bullish on stocks. Inflation concerns, particularly around wage increases, may be shaping the outlook. Finally, investors expressed increased confidence in the UK and Asia regions this months on the back of a 25 basis point rate cut by the Bank of England and continued signs that growth in Asia continues.

Bonds

Overall, managers are still bearish on government bonds, believing yields have been driven to excessive lows by a broad flight to quality. The US economic outlook is a bit brighter this period following decisive Fed action to counter the credit crunch and the failure of Bear Stearns. Evidence that financial institutions are still able to attract new capital has also helped sentiment in credit markets. While Japanese bond prices are also expected to decline, the reason may owe more to the fact that low yields have reduced the attractiveness of fixed income securities.

Currencies

Mangers remain bullish on dollar versus both the euro and British pound. The US currency has fallen steeply versus euro, and if the US economic weakness impacts European growth, the euro would likely correct from its seemingly overvalued level. The bearish view on pound can most likely be attributed to softness in the UK economy. There is a more balanced view on the dollar/yen exchange rate, though it is worth noting that the managers have moved from last month’s slightly bullish yen view.