Confidence returns to the European market, while Russia and the Fed are the ones to worry about. But above all, three quarters of the investors interviewed declared that they have further liquidity to put on the market in 2014. This is what emerges from the analysis by JP Morgan Private Bank, which unveiled European Investor Expectations Ultra High Net Worth and High Net Worth regarding the outlook on the markets, the propensity for risk and investments for 2014, as emerged from its latest “Private Client Survey”.
Conducted as part of the latest series of Private Banking Investment Insights (January – February 2014), held in 15 cities across Europe, involving over 900 UHNW and HNW investors, the research* investigated their outlook on the markets, their investment expectations with respect to the most material risks for the next 12 months, the investment sentiment and the portfolio positioning they foresee.
When asked about European economic growth, almost all investors (95%) said they were convinced that Europe will grow in 2014. The majority (49%) believe that Europe will grow at a rate of 1% over the next twelve months, and a quarter (23%) say a 1,5% growth rate is achievable, while 3,5% of investors think the region will grow 2% in 2014. Some investors were slightly more cautious: a a quarter of them (20%) expected a growth rate of less than 0,5%, but only 5% of investors believe that Europe will not grow at all.
Over half of investors (54%) believe equities will be the best performing asset class in 2014 – Spanish (70%), German (59%) and Greek (54%) appear to be the most bullish. Another third of investors (31%) consider alternative investments and hedge funds to be the winning asset classes of 2014, with respondents from the Netherlands (67%) and Switzerland (32%) particularly favourable. Investors broadly agree that fixed income will not perform as well as the past 20 years, and less than 5% expect the asset class to perform well in 2014.
Europe, which leads the rankings with 39% of investor votes, is expected to be the best stock market in 2014. However, other markets are also on the list: 35% of respondents believe that the United States will be the strongest stock market while 15% think emerging markets will perform better than other regions and one in ten (12%) say Japan could be the best equity performer.
For fixed income investments, well over half (59%) of investors consider extended credit (high yield, loans, peripheral debt) to be their best investment opportunity in 2014. Emerging market debt follows (18%), traditional/core fixed income (12%) and finally cash (11%).
An additional question asked investors if they plan to commit additional funds to invest in 2014. Over half (52%) revealed they plan to have it in equities, while a further 18% are willing to commit more money to alternatives. Only one in five investors (18%) prefer to maintain liquidity at current levels, while 8% are willing to increase liquidity and also reduce market exposure.
Slowing growth in China was the top concern for investors last fall; however, this perception has changed. The geopolitical/political environment is now the top concern for 33% of European investors, according to the study, which they believe could be the most relevant risk to markets in 2014. Other fears include the Fed exiting the program of quantitative easing (30%), deflation in Europe (21%) and the overvaluation of equities (17%).
César Pérez, Chief Investment Strategist of JP Morgan Private Bank for the EMEA area, commented: “Extreme risks in Europe are averted; the continent is going through a transition from recession to moderate economic growth. We are therefore positive on European growth in 2014 and expect a peak between +1% and +1,5%. However, while we are positive in our market view for 2014, we would like to see evidence of real growth in Eurozone GDP and corporate earnings. If markets go stronger this year and weather the economic and earnings recovery, there is still a risk that valuations could go overboard.
Cesar Pérez added: “Equity markets performed well last year against an backdrop of improving growth and we expect them to continue doing so in 2014. Japan and Europe in particular should benefit from strong earnings growth, which should drive their equity markets at higher levels. In regards to fixed income investments, while we expect only slightly positive returns for high grade bonds in 2014, we still expect overall positive returns for high yield and leverage loans and thus maintain a small overweight position in extended credit.
César Pérez concluded: “Given the outlook for 2014, it is reasonable that investors would be willing to commit additional funds to invest this year and, as 2014 is progressing, we expect the consensus – equities to beat bonds – to may prove to be founded. Many investors have redeemed large cash positions over the past few years and have therefore missed out on the good returns on risky assets, especially in equities. We believe that 2014 will be another year worth investing in”.
