Investment managers are cautiously optimistic about stocks in the coming year but more guarded about bonds, Towers Watson found in a survey of 98 managers with $13.3 trillion of assets under management. They foresee economic growth, albeit modestly.
Managers in the West, however, see a delayed recovery or stagnation, while the East ex-Japan is getting ready for a boom.
Overall, investment managers expect stock markets to revert to historical returns in the next 10 years, with a consensus of 10% returns in 10%.
“The overall picture we get from this influential group is one of recovery, with established Western markets lagging the emerging markets on most measures,” said Carl Hess, global head of investment at Towers Watson. “In addition, there is greater optimism than last year reflected in, among other things, an increase in the expected propensity of investors to take risk in 2010 and managers’ commensurate bullishness about risky assets.”
The sectors managers are most bullish on for the next five years, in order, are: emerging markets (87%), public equities (75%), commodities (71%), private equity (49%), high-yield bonds (46%), real estate (43%) and hedge funds (40%). The two areas they are most bearish on are government bonds (77%) and money markets (51%).
“It is not surprising that there is a high level of uncertainty in bond markets, given that we have limited experience of what happens when governments ease off the liquidity pedal,” Hess said. “As a result, credit markets are likely to remain unpredictable for the foreseeable future, responding more to triggers such as this rather than to economic data.”