The Markets October 17, 2008

Money Managers Report Bright Spots despite Dim Economic Outlook

A poll of investment managers found a large majority, regardless of investment strategy, expect corporate earnings to drop and global growth to decelerate in the short term.
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However, the survey, conducted by Northern Trust Global Advisors (NTGA), did reveal some bright spots within the U.S. equity market, most notably in the health care, technology and energy market segments.

Despite a generally negative sentiment, managers are still finding attractive investing opportunities, with 60% of those surveyed believing that the S&P 500 Index is undervalued – compared to mid year, when only 46% of thought that the index was undervalued, according to a release of the results.

Out of a range of various investment options, managers overwhelmingly favored the U.S. large cap and U.S. small cap asset classes, specifically citing health care, technology, and energy sectors as their preferred market segments.

Other findings from the survey include:

  • 86% of participants believe that corporate earnings will decrease over the next three months.
  • In a marked change from the previous quarter’s survey, 49% believe that U.S. interest rates will remain the same over the next three months; 23% expect rates to rise, and 28% anticipate lower rates. In contrast, 84% of managers in the previous quarter believed that U.S. interest rates would remain the same, while 8% expected rates to rise and 8% anticipated lower rates.
  • 87% of respondents expect global growth will decelerate through the end of 2008.
  • In a sharp turnaround from the previous quarter, 54% expect global inflation to decrease. In the previous quarter, prior to the September market turmoil, 85% believed that global inflation would increase or at least remain the same through the remainder of the year.
  • 87% expect housing prices to decrease in the next six months and 13% expect housing prices to remain the same. No respondent believes that housing prices will increase in the next six months.

“In light of recent market turmoil, this survey provides interesting insight as to where a large proportion of managers see potential opportunities and risks,” said Andrew Smith, chief investment officer for NTGA, in the press release.

The survey of more than 75 institutional money managers was conducted by NTGA in September.

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