Investor Heaven or Hell in Latin America ?
Investor stress levels seem to have diminished considerably over the past 12 months, according to a new poll of investor sentiment conducted at our 15th Annual Investor Conference held January 11-13 in Cancun, Mexico.
Each year, we survey investor sentiment to see how attitudes have changed over the course of the previous year. In this survey, fewer investors agreed that it will be tougher to make money in the year ahead compared with last year (35%, against 60% in January 2010), and their level of risk aversion continues to fall, as fully 48% said they want “somewhat” more risk in their portfolios, and another 9% want “much more” risk. The implication is that risk is steadily becoming easier to sell to their investor constituents.
We asked investors which part of their global market was most overvalued. Consistently, over the past three years, these investors (specializing in Latin America in many cases) said that China was the most overvalued, followed by Latin America. #adp02
A major difference in 2011 was that the proportion saying Western Europe was overvalued shot up to 19% from a consistent 10% in past years.
We asked, once again, where people expected the MSCI-LatAm Index to be by the end of June of the current year. Only 9% look for declines. 28% see the index rising less than 5%, another 41% expect a gain of 5-10%, and 21% look for gains of more than 10%. When we asked all investors which asset class would provide the best total returns this year, once again, a very large percentage (44% in 2011) picked equities. Private equity was a distant (17%) second, and local instruments third, at 11%.
Perceptions of the macroeconomic environment have shifted dramatically in a positive direction. A year ago, 65% of investors correctly predicted that the impact of global recession on LatAm markets would be minimal; in the 2011 poll, 37% predict that LatAm will be a “big winner” in terms of the impact of the global recovery, while 49% do not see the recovery conferring any particular advantage in terms of a boost to the region.
Commodity prices, for a third year, are considered the top driver of the region’s markets (by 29% of investors), and U.S. and Latin American regional economic trends are equally weighted (21% each) as strong drivers. Investors see Chinese growth (11%) and sovereign debt developments in the euro zone (8%) as much less important determinants of market outcomes in 2011.
The U.S. economic story must not be a strong part of investors’ regional scenario. Fully 53% agree with a consensus market view of a unsurprising, even tepid recovery, while 30% look for “much more” recovery and 17% for “much less.” Not surprisingly, most of this group agrees that the U.S. Federal Reserve will not raise rates until 1H12 (48%) or 2H12 (20%). A sizeable subgroup looks for the Fed to surprise markets by raising rates either in 3Q11 (4%) or 4Q11 (21%).
We asked questions to get an idea of the supply-and-demand dynamics in equity and fixed income markets in 2011. Again we asked issuers participating in the survey to give us some insights into how they plan on tapping the markets this year. Last year, 36% said they would issue equity viaIPOs. This year, only 9% were likely to take this route. Last year, 10% would issue debt either locally or abroad, while this year 20% said they would. Another 21% said they would issue both debt and equity. Fewer said they would issue new local debt: 13% in 2011 compared with 20% in 2010. Issuers who had no plans to tap the markets were 7% of the group this year, compared to 12% last year.
In 2011, the top sectoral picks by equity and corporate bond investors were steel and mining (18%), oil and gas (16%) and financials (15%). We also asked investors about their global strategizing. This conference was no different from prior conferences, as 53% of those participating said they would add to Latin America in their global weighting in the first half of the year. For the first time in this poll series, we also asked where investors would cut their weighting; 31% said they would cut their holdings of G-12 markets in general, 32% would cut cash.
When we drilled down to Latin America, 40% said they would add to their Brazil positions, an important increase from last year, and 23% to Mexico, somewhat fewer than one year ago. More investors said they would add to their Argentine exposure (10%, versus 4% last year). As was the case last year, 11% said they would add to Peru holdings, and fewer said they would increase Chile (6% vs. 12%) and slightly fewer Colombia (9% vs. 9.3%). When we asked the same group where they would subtract the most from their first half weightings, 25% picked Argentina, 21% Chile, and 18% chose Brazil. Mexico was fourth, picked by 13%.
Finally, we once again asked investors to identify the best fixed income investment opportunity in 011. Yet again, the most popular choice was local market bonds—chosen by 31%, and the biggest gainer was the corporate bond category—chosen by 17%, compared to 13% last year. The composition of the audience taking this poll is remarkably stable year to year. Roughly one third were equity portfolio managers or their proxies, 15% of participants were fixed income PMs or analysts, 6% were investors from hedge funds, 20% issuers of debt or equity, and 19% resisted categorization as “others.” Our sincere thanks to all those who chose to participate.
The Gateway Team – When You are Serious About Property