Investors are turning increasingly bullish on U.S. markets as they declare its economy in better health than major rivals from Europe to Asia, according to the Bloomberg Global Poll.
As the World Economic Forum's annual meeting began today in Switzerland and Federal Reserve policy makers convene in Washington, 48 percent of respondents predict the U.S. will be among the world's best-performing markets this year, according to the quarterly poll of 1,209 investors, analysts and traders who are Bloomberg subscribers that was conducted Jan. 23-24. That's the highest rating for the U.S. since the poll began in 2009 and it's more than twice that of Brazil and China, the second-ranked markets.
The U.S. economy is improving in the eyes of half those surveyed, compared with 18 percent who are positive about world growth. Investors have yet to embrace tentative gains in fighting Europe's debt crisis, with 48 percent identifying the euro area as one of the worst to invest in and 67 percent predicting that any perceived improvement is temporary and the crisis will deepen again.
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"The difference between the U.S. and Europe is almost night and day," said Paul Winghart, a poll respondent and senior fixed-income strategist at RBC Wealth Management in Minneapolis, which oversees about $227 billion. "We have been recommending that investors stay within the U.S."
Americans were the most optimistic about their own markets, with 62 percent citing it one of the best investment opportunities, up from 53 percent in December. Twenty-five percent of euro-area residents also picked the U.S., compared with 40 percent who chose the EU. Almost half of U.S. respondents said their economy was improving; 17 percent of euro-area residents said the same of their own.
The U.S. economy will grow 1.8 percent this year, while the euro-region will shrink 0.5 percent, the International Monetary Fund said yesterday in an update of its World Economic Outlook.
That two-speed sentiment is reflected in what investors are betting on in the next six months. Fifty-nine percent say they expect the Standard & Poor's 500 Index to be higher by the middle of the year and 32 percent say they intend to buy more dollars. By contrast, 43 percent predict the Euro Stoxx 50 Index will be lower over the same timeframe and 9 percent plan to increase their exposure to the euro.
Favoring Stocks
Investors increasingly favor stocks, with 46 percent saying they will offer the highest return this year — the most since the poll began. Thirteen percent identify commodities as the most attractive asset, with 12 percent choosing gold and 11 percent preferring currencies.
Thirty-nine percent of respondents say bonds will offer the worst return and 9 percent say they are increasing holdings of U.S. Treasuries, with 46 percent predicting the yield on the 10- year note will rise by mid-year. Just under half say they will cut their exposure to European sovereign debt.
Pluralities say the prices of gold and oil will both be higher in the next six months as will the MSCI Asian Pacific Index and the FTSE 100.
As investors become more confident, their "money will enter the stock market," said Todd Cowle, a poll participant and managing partner at Ultimate Tier Advisors LLC in Plano, Texas, which manages about $100 million. "We're setting ourselves up for a rally" in the U.S. equity market, he said.
Fifty percent of the respondents said the economy in the U.S. is improving, compared with 10 percent who said so in a poll in September. This confidence provides Fed Chairman Ben S. Bernanke and his colleagues with a reason to hold off on another round of stimulus when they conclude their two-day meeting today.
It also hands an election-year fillip to President Barack Obama.
"No, we will not go back to an economy weakened by outsourcing, bad debt, and phony financial profits," Obama said in the prepared text of his State of the Union address last night. "Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that's built to last — an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values."
Some 55 percent of those asked, nevertheless, say they are pessimistic about Obama's policies.
Job Growth
Payrolls in the U.S. grew by 200,000 workers last month after a gain of 100,000 in November, the Labor Department's report showed on Jan. 6. The jobless rate unexpectedly declined to 8.5 percent, the lowest level since February 2009, from 8.7 percent the prior month. An improving job market and freer credit may underpin American consumer sentiment and spending just as the debt crisis in Europe prompts additional belt-tightening overseas.
Signs of U.S. renewal and the continued weakness in Europe may set the tone for the five-day gathering of 2,600 business, financial and political leaders in the Swiss ski resort of Davos. Delegates include U.S. Treasury Secretary Timothy F. Geithner, Microsoft Corp. co-founder Bill Gates and billionaire investor George Soros.
"We are very bullish about the United States," Starwood Hotels & Resorts Worldwide Inc. President Matthew Avril said in an interview in Davos today. "Everybody recognizes that there are some challenges and difficulty in Europe that have to be worked through."
The U.S. may provide more support for slumping global growth as 37 percent conclude the world economy is deteriorating and the same amount share that view about China, which helped power the recovery from the recent credit crisis. Still, 67 percent say the world won't suffer a recession this year and 79 percent predict the same of the U.S. The IMF sees global growth of 3.3 percent, with Chinese growth slowing to 8.2 percent.
Investors are less upbeat about the euro region even after its debt markets started the year showing signs of stabilizing. For the first time, a majority — 56 percent — say one or more nations will leave the single currency in the next 12 months and 6 percent say its economy is improving. Less than 30 percent say the worst of the debt crisis is over.
Still, 81 percent say the currency bloc won't collapse this year and 64 percent doubt the region's banks will suffer a meltdown in 2012. Policy makers may also have succeeded in reducing the fear of default as the number of respondents anticipating sovereign bankruptcies in Portugal, Ireland, Italy and Spain all decline. Five percent or less say a default is likely in the U.S., U.K., France or Germany, while 93 percent say one remains in the cards for Greece as it struggled to strike a debt-swap deal with creditors.
Europe Downgrades
Eighty percent of investors say this month's decision by Standard & Poor's to downgrade France was justified, with 90 percent backing the ratings cuts of Spain, 89 percent supporting Italy's downgrade and 67 percent supporting Austria's. Seventy- one percent endorse the U.S.'s August loss of its AAA rating, and a similar amount say Germany won't suffer the same fate.
A majority of respondents — 51 percent — say they plan to invest more in stocks during the next six months, up from 43 percent in December. Twenty-five percent say they will increase their exposure to cash, down from 36 percent.
As the Federal Open Market Committee meets today to set monetary policy for the first time in 2012, 69 percent of those polled say they have a favorable view of Bernanke. For the first time, officials will reveal their own predictions for the benchmark federal funds rate.
Seventy percent are positive about Mario Draghi, two months since he became president of the European Central Bank, and half endorse Geithner.
The central bankers may still have work to do. Sixty-three percent of investors say the Fed will pursue even looser monetary policy by buying bonds. Eighty-eight percent and 68 percent say the ECB and Bank of England will do the same, respectively.
Among world leaders, around half are optimistic about the policies of U.K. Prime Minister David Cameron, German Chancellor Angela Merkel and Chinese President Hu Jintao. French President Nicolas Sarkozy's policies are regarded pessimistically by 69 percent, while 43 percent — a plurality — hold a negative view of Japanese Prime Minister Yoshihiko Noda's policies.
The poll was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 2.8 percentage points.
Bloomberg News
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