Investing

Investment Managers Most Bullish on Emerging Market Equities

However, they view U.S. equity valuations as getting less attractive and see a risk to the markets trajectory if the Trump administration cannot enact legislation that supports improved economic growth, Northern Trust finds.

By Rebecca Moore editors@strategic-i.com | April 27, 2017
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Investment managers remain generally optimistic regarding the U.S. economy but are reassessing U.S. equity valuations, according to the quarterly Investment Manager Survey by Northern Trust Asset Management.

After a more than 10% gain in U.S. equities following the November election of President Trump and a Republican-controlled Congress, more than half of those surveyed (59%) said an inability to move key legislation forward is the biggest threat to the rally. A geopolitical incident, trade policy concerns and equity market valuations are considered the next most likely risks to the U.S. market, according to the survey of approximately 100 investment firms taken March 14 to 27, 2017.

“Low interest rates, slow but steady economic growth and improving corporate earnings along with a Republican led pro-growth policy agenda have bolstered markets,” says Christopher Vella, Chief Investment Officer for Multi-Manager Solutions at Northern Trust Asset Management. “Our survey respondents, however, view U.S. equity valuations as getting less attractive and see a risk to the markets trajectory if the administration cannot enact legislation that supports improved economic growth.”

More than half (51%) of managers believe U.S. equities are overvalued, the highest percentage in the survey’s history and a significant increase from the previous quarter, when 39% saw U.S stocks as overvalued. Valuations held up better in other markets, 37% of managers believe equities in Japan are undervalued, in line with last quarter; 80% believe European equities are undervalued or fairly valued, down slightly from 89% the previous quarter. Just less than half (48%) see emerging market equities as undervalued, compared to 61% the previous quarter.

Managers are most bullish on emerging market equities, followed by non-U.S. developed markets. TIPS jumped to third among asset classes, up from sixth last quarter. Looking at sectors, managers were most bullish on the information technology sector, which rose from fifth place previously. Financials dropped from first to second place.

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