Equity Insights  Fund managers have turned noticeably more bullish:: HSBC

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 Equity Insights

 Fund managers have turned noticeably more bullish…
 …but they question whether this rally is sustainable
 We try to answer their most common questions

Since we published our Quarterlies at the beginning of October, we have discussed our
views with almost 60 investment institutions in Europe and Asia. This is a particularly
uncertain time, and investors had a lot of questions: Is the Fed’s next round of quantitative
easing already priced into equities? Anyway, will QE work? What will be the impact of
currency wars? Are emerging markets becoming a bubble? Will countries introduce
capital controls to slow inflows? What could derail the current market rebound? Will
currency moves continue to mess up performance? In this EI, we report on the most
frequently asked questions (FAQ, in internet parlance) and try to give some answers.
Overall, our impression is that fund managers have become decidedly more bullish since
we last did a roadshow in the early summer. Partly that is an effect of the strong
performance of stock markets: global equities have risen by 19% since July and emerging
markets by 23% (Chart 1). We note, too, the first signs that retail investors are finally
warming to equities. The AAII’s weekly survey (Chart 2) shows that, for the first time
since early 2007, half the respondents expect stocks to rise over the next six months.
Most fund managers take the view that one should never fight the Fed, which has made it
clear since September that it will do more QE. Investors unanimously favour emerging
markets (although they are far from having fully implemented this). Our themes of
looking for dividend yield (especially in the telecoms sector) and preferring capex plays to
consumption were well received. But many fund managers still doubt whether the current
rally is sustainable, and continue to worry about structural problems.