Seventy-two percent of institutional investors worldwide predict the global economy will strengthen this year, sharply up on 57 percent a year ago, according to the annual Search for growth report from BNY Mellon and the Economist Intelligence Unit (EIU).
Still, investors see increasing dangers to the global economy, with 65 percent of those surveyed for the report saying growing income disparities ‘pose a threat to global capitalism’ and 51 percent seeing ‘major downside risks’ in emerging markets. Investors also cite a 50 percent likelihood of political and financial instability in France and Italy this year, and a 23 percent chance of a sharp slowdown in China with severely negative consequences.
‘The two biggest risks are in China and Europe – so much is riding on a soft landing in China that anything else could have a devastating impact on global investment funds,’ say the report’s authors. ‘In Europe, a resurgence of fears about the future of European political and monetary union would quickly ratchet up volatility in financial markets and send investors back to safe havens such as the US and gold. That could prove especially devastating to investments in emerging market equities.’
The report finds investors expect the US to lead the economic recovery, with 57 percent saying lower energy and labor costs will boost US manufacturing and 52 percent stating that the housing market will further help accelerate the country’s growth this year. A major risk to the US economy, according to the report, is a possible increase in trade tensions with China, cited as ‘likely’ or ‘very likely’ by 52 percent of investors surveyed.
For the first time in the three-year history of the survey, the US has surpassed China as the main pick for asset growth, with 45 percent choosing the US and 42 percent picking China. Last year, China was named by 44 percent while the US was chosen by 40 percent, according to the EIU survey of 730 leading institutional investors worldwide.
China still exceeds the US in terms of the outlook for overall economic growth, however, with the country being cited as one of the top three picks for GDP increases by 52 percent of investors. But that figure is down sharply from 60 percent last year and 67 percent in 2011. The US is cited by 35 percent of investors this year, up from 32 percent last year and 33 percent in 2011. The European Union is chosen by only 10 percent.
