Jun 17th 2010
In the world of investments, BRICs are the large emerging markets made up of Brazil, Russia, India, and China. Just months ago a poll of global investors rated the United States well below China and Brazil as an attractive market to buy into.
But today, nearly 40 percent of respondents are looking to the U.S. for the most promising investment opportunities in the coming year. In October of 2009, only 20 percent felt that way. In fact, a plurality of poll respondents said the U.S. was "the market posing the greatest downside risk."
What has changed? According to Bloomberg News, the Greek debt crisis has caused investors to lose confidence in the global economic recovery. After reviewing quarterly poll results, Bloomberg analysts said the investment world thinks President Barack Obama is doing well at leading the U.S. out of its economic doldrums.
Lawrence Summers, director of the White House National Economic Council, said the higher investor confidence is attributable to Obama’s efforts at "restoring the United States to strong economic fundamentals." He added, "While there remains much to do, the U.S. economy is growing."
Wayne Smith, managing director of fixed-income trading at Northeast Securities in Uniondale, New York, told reporters, "We’ve seen the bottom. We’re firm, and the United States is slowly moving forward."
How did the rest of the BRICs do? After the U.S.'s 39 percent rating was Brazil at 29 percent, then China at 28 percent, and India at 27 percent. Russia was chosen by only 6 percent of respondents.
As recently as January, China was the favorite and Brazil was ranked second.
While this is good news, Bill Gross, the co-chief investment officer of Pacific Management Co. and manager of the world’s largest bond fund, put it in perspective. In a Bloomberg Radio interview he said the U.S. was "the least dirty shirt."
In January, 21 percent of investors thought the world’s economy was on the decline. Less than six months later, that number doubled to 42 percent. Chief among the pessimists were investors from the U.S.
- 58 percent of U.S. respondents said the world economic situation was deteriorating
- 31 percent of European respondents shared that view, along with
- 35 percent of Asians
The group that registered most cynical about their own corner of the world was the Europeans, with 40 percent saying the economy was on the decline. They were followed by 21 percent of U.S. investors who viewed the American economy negatively, and 9 percent of Asians who viewed their economy negatively.
Which region do investors see as offering the worst investments? More than half see the European Union as being in sharp decline. In January, Europe also ranked at the bottom, even though only one-third of respondents rated them as worst.
A very grave situation
The debt crisis in Greece is causing fears of a government default to spread across Europe, according to Bloomberg. In Portugal and Spain, government debt has been downgraded by credit agencies. And in Hungary, stocks took a dive on June 4, when a government official noted that his country’s economy was in "a very grave situation." Now Hungary is scrambling to distance itself from the notion that it might be headed for a crisis similar to that of Greece.
Meanwhile, international money is pouring into U.S. government debt instruments. Bloomberg reported that the yield on 10-year Treasury notes has dropped from 3.99 on April 5, to 3.15 in recent days. The benchmark stock index, Standard & Poor’s 500 Index, is down more than 13 percent from its high on April 23, but up 30 percent since Obama took office.
Has that rebound helped the Obama administration in terms of public opinion? Bloomberg said there is evidence to the contrary. In January, the President’s job approval rating was 60 percent. Today it hovers near 51 percent. And though Obama’s Treasury Secretary, Timothy Geithner, expresses optimism that China will soon revalue its currency, most investors who were polled disagree. They said it will be a year or more before that happens.
Sixty percent of investors who responded to Bloomberg’s survey believe that within 20 years, China will replace the U.S. as the world’s largest economy. Roughly another 25 percent see this happening within 10 years.
How does the future look?
The global outlook might be pessimistic overall, but investors said they still see opportunities to make money. In January only 27 percent of investors reported that they were taking risks and scooping up opportunities. By June, that number was up to 35 percent. Among Asian investors, 48 percent said they were taking more risks than they had been.
What are the trends? Bloomberg doesn’t see a major shift in asset classes. Stock is still the most appealing asset class for the year to come, with commodities second (though the number of investors seeking commodities declined from 31 percent in January to 23 percent in June). By a margin of nearly two to one, poll respondents said they likely will increase their stock holding over the next six months.
Bonds, on the other hand, are expected to yield the worst returns according to 36 percent of respondents. Real estate was deemed the worst investment by 24 percent of respondents. In Asia, real estate ranks as the worst investment based on the fact that China’s property market is considered overheated.
Investors see crude oil prices – which tend to rise with general economic activity – as going up. Forty-nine percent said crude oil prices will increase in the coming six months, 24 percent believe they will drop, and the rest see little or no change coming.
In other poll results, slightly more than 25 percent see inflation as a major threat within a couple of years. The regions most vulnerable to inflation were said to be China, by 19 percent, followed by the U.S. by 17 percent of respondents, and the Euro zone, by 10 percent.
About Bloomberg polls:
Bloomberg’s quarterly global poll of investors, traders, and analysis was conducted June 2-3, and covered six continents by Selzer and Co., an Iowa-based firm. The methodology included interviews with a random sample of 1,001 Bloomberg subscribers who are decision makers in markets, finance, and economics. The survey includes a 3.1 plus or minus error margin.