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Investment managers positive about corporate earnings, survey finds

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Investment managers expect corporate earnings to increase in the next three months, and a majority expects global GDP growth to accelerate in the next six months, according to a survey

Investment managers expect corporate earnings to increase in the next three months, and a majority expects global GDP growth to accelerate in the next six months, according to a survey by Northern Trust Global Advisors.

The poll found that 58 per cent of managers expect global inflation to increase in the next six months, compared to just 17 per cent of managers who held the view last quarter. Thirty nine per cent of participants think corporate earnings will increase in the next three months, compared with just one per cent who felt that way last quarter.

"Participants’ economic expectations are the most positive we have seen since beginning our survey one year ago," says Chris Vella, global director of manager research at NTGA. "Managers have been channeling their relatively increased appetite for risk by reducing cash holdings and seeking investment opportunities such as US small cap equities and emerging markets."

The survey saw a dramatic decline in managers who believe the market, as represented by the S&P 500, to be undervalued. In contrast to first quarter, where almost 80 per cent saw the S&P 500 to be undervalued, only 51 per cent held that view this quarter.

Confirming indications that managers are more willing to assume risk and participate more fully in the markets, 79 per cent of managers said that they were either less risk averse or had no change in their risk aversion in the last three months.

A further 39 per cent of participants believe that corporate earnings will increase in the next three months, compared with just one percent who believed the same in the previous quarter’s survey. Twenty nine per cent and 32 per cent of responders believe that corporate earnings will stay the same or decrease, respectively in the next three months.

The survey also found that managers’ view on global inflation has changed notably, with 58 per cent expecting global inflation to increase in the next six months, compared to just 17 per cent of managers who held the same view one quarter ago.

Unchanged from the previous quarter, US small cap equity was ranked as the most attractive investment opportunity. In a sign that managers are now willing to take more risk, second place emerging market equity and seventh place emerging market debt climbed in rankings from the previous quarter.

Investment managers cited technology and energy as their top two most attractive market segments, followed by healthcare, industrials, and consumer discretionary products. Industrials made its first appearance on the top five list, edging out consumer staples.

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