Almost two-thirds of Nordic investors intend to dump a proportion of their bond holdings over the next six months while 40 per cent of funds plan to increase their exposure to equities over the same period, according to the results of nrpn’s latest quarterly investor survey.

The study, which took in responses from 16 pension and insurance funds with more than €230bn of assets under management, found that nine investors are planning to reduce their exposure to bonds – with just three planning to increase their allocations – while six respondents are making plans to raise their equity holdings.

This is despite global equity markets – triggered by falls in China – taking a dive at the end of February. “Hong Kong and Chinese equities will still deliver positive returns this year, despite the turbulence on the country’s stock exchange that helped spark falls elsewhere around the world,” says Baring Asset Management.

“Chinese stocks may have suffered their biggest fall in a decade, but they should be supported by the economy, which continues to expand at 9 to 10 per cent a year. There could be more volatility, however, as the government raises interest rates to take some heat out of the economy during the year, even though the latest data shows annual Chinese inflation was just 2.2 per cent in January.”

Surprisingly, however, investors are also more optimistic about future equity market returns than they were in our previous survey. Respondents expect European stocks to return 7 per cent over the next six months compared to previous predictions of 4.5 per cent, while Japanese equities are expected to turn in 5.7 per cent compared to December forecasts of 3 per cent. US predictions averaged 4.7 per cent.

“Whilst economic news from Europe continues to be upbeat, the scenario in the US is not so buoyant,” says Bob Yerbury, CIO at Invesco Perpetual. “Revised fourth-quarter 2006 GDP figures showed that the US economy grew at an annual rate of 2.2 per cent, slower than the government’s first estimate of 3.5 per cent. Weakness in January’s durable goods points to further evidence that economic growth in the first quarter of this year may be below long-term trends. By contrast, both the German and French economies continue to show strength, underpinned by better than expected Q4 2006 GDP figures.”

The survey also found that 6.7 per cent of investors have no concerns about the equity market going forward but 66.7 per cent of respondents indicate worries about risk and 20 per cent said they have issues with price. A further 6.7 per cent have concerns with the quality of managers and industry advice.

“Equity investors are grappling with the twin problems of slowing profits growth and higher interest rates, in markets as diverse as the US and Japan,” says Richard Batty, global strategist at Standard Life Investments. “Secondly, investors have been increasing their risk appetite, perhaps irrationally, as they scramble to invest in historically expensive emerging markets, low grade credit names, yen carry trades or so-called infrastructure companies that appear to offer stable earnings prospects. Our proprietary technical indicators have suggested that investor positioning was becoming more extreme and complacent regarding the outlook for equities.”

On the bond side – although 60 per cent of investors said they will decrease their exposure to fixed income over the next six months – 35.3 per cent of respondents said they are most interested in government paper and 29.4 are most interested in emerging market bonds.

Investors were least interested (17.6 per cent) in corporate and high yield bonds.

As an average, investors have 50.6 per cent of their asset allocated to bonds, 36.7 invested in equities, 1.7 per cent allocated to hedge funds, 1.6 per cent to private equity and 1.8 per cent invested in cash. Funds also have 7.5 per cent of their assets exposed to real estate, an amount that 43 per cent of investors plan to increase.

Jon Lekander, head of investment strategy at Aberdeen Property Investors says: “The Nordic region remains an interesting market for investors looking for strong growth and regional diversity. All five countries are performing well, but Norway stands out as the best single market.”

Out of the 16 polled investors 60 per cent of respondents believe world growth prospects will remain positive over the next six months and 40 per cent expect prospects to remain neutral.

Figure one: Expected changes in current asset allocation over the next six months

Figure two: Average market forecast returns over next six months

Figure three: Average asset allocation

Figure four: Predicted fed and ECB rises over the next six months

Oil price debate settles on a middle ground

Not one investor believes oil prices will exceed $65 a barrel over the next six months, according to nrpn’s latest quarterly investor survey.

The study, which took in responses from 16 pension and insurance funds with more than €230bn of assets under management, found that 60 per cent of respondents expect oil prices to settle in the $55 to $64 range, while 33.3 per cent of investors believe prices will settle in the $45 to $54 range. Only 6.7 per cent of investors believe prices will fall below $35.

At the same time, 53 per cent of investors believe the European Central Bank will raise interest rates once over the next six months and 47 per cent expect the ECB to raise rates twice. Seventy-three per cent of investors, meanwhile, think the Federal Reserve (Fed) will leave rates unchanged over the next six months and 27 per cent of respondents expect the Fed to increase rates just once.

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