Northern Trust Survey: Investment Managers Remain Wary of Emerging Markets and U.S. Corporate Profits
European Stock Valuations Attractive; Bullish on Information
A potential slowdown in emerging-market economies remains the top
concern of investment managers in a quarterly
survey by Northern Trust Asset Management, while expectations on
U.S. economic growth and corporate earnings continue to be low for the
For the second consecutive quarter, investment managers in the
fourth-quarter survey ranked a slowdown in emerging markets as the
biggest risk to global equity markets over the next six months. U.S.
corporate earnings ranked as the second-highest risk to equity markets,
and a slowdown in the U.S. economy ranked third, up from sixth place in
the prior quarter.
“Managers rank corporate earnings and U.S. economic growth as top
concerns,” said Christopher Vella, Chief Investment Officer for Multi-Manager
Solutions at Northern Trust. “A lower percentage of managers expect
U.S. corporate earnings, job growth or U.S. GDP to accelerate than has
been the case for a number of years. Most managers still expect U.S.
economic activity to remain stable, but this change in expectations is
worth monitoring going forward.”
The survey of approximately 100 money managers, taken December 3-21,
also sought views on the expected market reaction to extended low oil
prices, the U.S. Federal Reserve’s likely course on interest rate hikes,
and regional equity market valuations.
Although most managers surveyed (53 percent) expect corporate earnings
to remain the same, more managers expect earnings to decrease than
increase (24 percent to 23 percent) over the next 6 months. On the U.S.
economy, those who expect an increase in U.S. GDP over the next six
months fell to 23 percent, down from 54 percent in the second quarter of
2015. Sixty four percent of respondents expect U.S. GDP growth to remain
the same over the next six months.
While emerging markets are the top concern for equity markets, the
probability of emerging markets causing a global economic recession is
considered quite small by investment managers. The vast majority (84
percent) of respondents believe that weakness in emerging markets has
less than a 25 percent probability of turning into a global recession
over the next year.
In December, with oil prices falling below $50 per barrel, managers were
asked how sustained prices at that level would affect U.S., developed
non-U.S. and emerging markets equities. Nearly half (49 percent) said
expect low oil prices to have a negative impact on emerging market
equities, and 45 percent said there would be a positive impact on
developed non-U.S. equities. For U.S. equities, 25 percent expect a
negative impact, with the rest divided between positive and neutral.
Looking at portfolio positioning, an increased percentage of managers
are more risk-averse, 22 percent, up from 17 percent in the third
quarter. Over two-thirds of managers, 69 percent, expect volatility to
increase in the U.S. equity market over the next six months.
“Even with lower energy prices, more than half of the managers
maintained the same level of commodities exposure as the prior quarter,”
said Mark Meisel, Senior Investment Product Manager for Multi-Manager
Solutions at Northern Trust. “About an equal percentage of managers
added to their commodities position as lowered their exposure. More
generally, increased market volatility for some managers has led to
increased risk-aversion but most managers have not altered their
Other findings of the fourth quarter survey include:
Non-U.S. equity markets are viewed as having the most attractive
valuations: 54 percent say European equities are undervalued, and 52
percent see emerging market equities as undervalued. U.S. equities are
seen as undervalued by just 21 percent of managers, the lowest
percentage since the survey began in the third quarter of 2008.
Forty-one percent of investment managers view U.S. equities as
overvalued, up from 37 percent in the third quarter.
More than two-thirds (68 percent) of managers expect the Fed will
raise rates with a series of small interest rate increases. About 20
percent expect the Fed will hold off on any further increases after
its December rate hike.
More than half (55 percent) of managers expect U.S. economic growth
will trend toward slower-than-normal growth over the next few years,
while 37 percent expect the economy will trend toward normal growth
Information technology has a bullish rating from 68 percent of
managers, followed by financials at 38 percent.
For its survey, Northern Trust polls investment firms that participate
in its multi-manager investment programs and funds. The select group of
respondents includes fixed income and equity managers across value and
growth styles, with a bias toward fundamental, bottom-up stock picking
strategies. The survey is conducted quarterly so that Northern Trust and
participating managers can examine trends in attitudes and allocations.
The full Investment Manager Survey Report and a video on survey
highlights can be found on Northern Trust’s web site at www.northerntrust.com/managersurvey.
Northern Trust Asset Management is a leading provider of multi-manager
investment solutions, with more than $97 billion in assets ($56.1
billion under management and $41.0 billion under advisement) as of
September 30, 2015, for institutional and personal clients. Northern
Trust invests with more than 300 external managers worldwide, offering
personal and institutional solutions that include outsourced chief
investment officer (OCIO) services, alternative asset classes, single
asset class solutions and emerging manager programs.
Northern Trust Asset Management is composed of Northern Trust
Investments, Inc., Northern Trust Global Investments Limited, 50 South
Capital Advisors, LLC, Northern Trust Global Investments Japan, K.K., NT
Global Advisors, Inc. and investment personnel of The Northern Trust
Company of Hong Kong Limited and The Northern Trust Company.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of
wealth management, asset servicing, asset management and banking to
corporations, institutions, affluent families and individuals. Founded
in Chicago in 1889, Northern Trust has offices in the United States in
19 states and Washington, D.C., and 20 international locations in
Canada, Europe, the Middle East and the Asia-Pacific region. As of
December 31, 2015, Northern Trust had assets under custody of US$6.1
trillion, and assets under management of US$875 billion. For more than
125 years, Northern Trust has earned distinction as an industry leader
for exceptional service, financial expertise, integrity and innovation.
Visit northerntrust.com or follow us on Twitter @NorthernTrust.
Northern Trust Corporation, Head Office: 50 South La Salle Street,
Chicago, Illinois 60603 U.S.A., incorporated with limited liability in
the U.S. Global legal and regulatory information can be found at http://www.northerntrust.com/disclosures.
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