Global fund managers optimistic about recovery

A survey of fund managers has found they hold a sustained optimism in the global economy, with equities and emerging markets leading the way to a recovery.

According to the latest Towers Watson survey of 141 investment managers, the two main risks to avoid for fund managers will be the likelihood of sovereign debt default in the Euro zone and continuing economic stagnation in Japan.

Global head of investment Carl Hess said the survey indicates that the global economy is continuing on the path to recovery, but that it will be volatile and patchy depending on the market.

“There is sustained optimism from last year reflected in, among other things, an increase in the expected propensity of investors to take risk in 2011 and managers' commensurate bullishness about risky assets,” he said.

“A further indication of optimism is the view that all economies are expected to have moderate growth in 2011 as well as during the next 10 years, supported by loose central bank monetary policies.”

Unemployment is still predicted to be a major challenge in the coming year for some developed countries, while short-term interest rates are expected to remain low in 2011 and trending upwards in the long-term, with the exception of Australia and China.

“While markets anticipate a gradual increase in policy rates, uncertainty around the timing and the extent of rate hikes will be a dominant source of uncertainty and market volatility," Hess said.

Fund managers also expressed bearish views of nominal government bonds, while most managers held neutral views on the prospects for inflation-linked government bonds (48 per cent) and on high-yield bonds (41 per cent).