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Markets tend to rise and fall on economic news, but this year institutional investors believe market performance is likely to hinge on how well governments play their geopolitical roles.
That is one conclusion from a study of nearly 800 institutional investors conducted by the Economist Intelligence Unit in January 2012. Investors believe the main risk to the global recovery is the threat of an oil price spike, tied in part to tensions over Iran's nuclear programme. They are also concerned about the effects the events in Spain pose to the future of the European currency union.
The search for growth, the second annual survey and report sponsored by BNY Mellon, explores the global investment environment unfolding in 2012 and asks investors where they see growth opportunities.
Other key findings include:
- The US has found favour among investors as a stable middle ground. With GDP forecast to grow modestly, investors now see the US as offering an attractive risk/reward trade-off. In this year's survey the US moved from fourth to third place for asset price growth, with 40% of respondents placing it among their top three markets as compared to 34% in last year’s survey.
- Investors cool on commodities and warm to domestic equities. Investors have moved away from commodities in the face of lower demand for many raw materials. Some large institutions may also be moving away from commodities to concentrate on more liquid assets during a time of uncertainty.
- 85% of investors see "significant opportunities" in today's markets, although 51% acknowledge that those opportunities come with "major downside risks". Investors believe that an easing of the European debt crisis, coupled with a somewhat better economic performance in the US, has created a more stable outlook for financial markets.
- High levels of debt continue to be a major concern for institutional investors. Investors believe that debt levels are unlikely to change over the next 12 months, but debt will continue to restrict the world economy's recovery from the 2008 global economic crisis.
The Search for Growth: Opportunities and risks for institutional investors in 2012 is available free of charge at: http://digitalresearch.eiu.com/searchforgrowth/
