UK investors and advisers turn to Europe for value -survey

UK investment professionals have become notably more positive about European equities as an asset class over the last three months, according to a survey from Baring Asset Management.

The firm’s quarterly Investment Barometer indicated that over half the respondents (53%) said they were now either ‘quite’ or ‘very’ favourable towards European equities, up from 42% in the last survey and the most favourable they have been for a year.

However, the Barometer also found that the eurozone debt crisis is still considered by the majority of UK financial advisers and investment intermediaries to be the most significant threat to global growth over the next six months, with 89% citing it as the biggest macroeconomic challenge (down slightly from 92%).

The second and third biggest challenges cited were ‘overleveraged’ economies (60%) and slowing growth in China (53%), respectively.

Emerging market equities, Asia equities excl. Japan and US equities remain the most favoured investment opportunities. Despite sentiment falling since the last survey, 87% of respondents said they were either ‘quite’ or ‘very’ favourable towards emerging market equities (down from 91%), still the highest of all asset classes.

This was followed by Asia equities excl. Japan (84%, down from 91%), global equities (84%, flat) and US equities (83%, down from 94%).

Respondents are also now more favourable towards UK equities (77% either ‘quite’ or ‘very’ favourable, up from 75%), multi-asset products (65%, up from 59%) and emerging markets debt (61%, up from 54%).

Rod Aldridge, head of UK Retail Distribution at Barings, said its seemed that while the majority of advisers remain deeply concerned over the eurozone debt crisis, some are sensing opportunities at a critical time in the evolution of the eurozone.

He noted that sentiment towards the US is also less robust. “In particular, nearly half of respondents cited the so-called ‘US fiscal cliff’ as one of the biggest global macroeconomic challenges right now, and it will be interesting to see how this sentiment changes, if at all, in the wake of the US elections in November.”

Asked what they are doing to help their clients through the current market volatility, over two thirds (67%, up from 64%) of investment professionals said that portfolio diversification is key. This was closely followed by encouraging more regular reviews of investment portfolios to make sure that risks are properly managed (47%) and de-risking investment portfolios (41%). More intermediaries (35%, up from 31%) said they had been encouraging investment in multi-asset products.

Despite a fall in inflation over the past 12 months, the Barings Investment Barometer found the majority of client portfolios (68%) are still positioning assets in preparation for a highly inflationary environment.

Over two-fifths (43%) of investment professionals and intermediaries anticipate that the UK economy will predominately experience increased inflation over the next three years, with 19% believing the economy will experience disinflation or deflation to September 2015.

This expectation of high inflation may have affected sentiment towards cash: cash is the least favourable asset class with only 34% of UK investment professionals and adviser either ‘quite’ or ‘very’ favourable towards cash as an investment opportunity.

Barometer results available at: http://www.barings.com/uk/ProfessionalAdvisers/NewsViews/BaringsInvestmentBarometerResults/index.htm

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