Posted on 12 Dec. 2020 at 8:00
Too good to be true. The improvement in the stock markets since the crisis does not convince “zinzins”. Almost eight in ten institutional investors believe the markets have underestimated the long-term impact of the crisis. And they are just as numerous to judge the rate of rise of the markets “unsustainable”, reveals a survey of Natixis IM among 500 pension funds, sovereign funds and insurers representing more than 13.500 billion dollars of assets.
It must be said that the rebound was as rapid as the fall was brutal, particularly in the United States. However, the euphoria of the financial markets contrasts sharply with the economic difficulties expected by these investors. Four in five expect the economy to return to its pre-crisis level by 2022 at the earliest. 95% of “goofs” fear a correction on the financial markets in 2021.
The United States is losing popularity
They are not the only ones to be skeptical about the optimism of the markets. Societe Generale strategist Albert Edwards recently criticized the “obscene valuations” of the US markets and their theoretical justification by lowering interest rates. European markets are already engaged in a “Japonification”, he argues, synonymous with low valuation multiples, and the United States are not very far from it. In other words, there is a better chance of seeing the American markets fall to the same level as the European markets rather than observing the latter catching up with the former.
Institutional investors are in fact more likely to want to reduce their exposure to US markets than to consider increasing it, while the reverse is true for Europe, Asia and emerging countries. Beyond this geographical arbitration, the “goofs” do not really know which way to turn. A majority of them expect the iconic values of the old economy to beat the “growth” values of tech. But when asked specifically about the prospects for each sector, they still favor the technological sector, while a plurality sees banks and energy lagging behind.
Where they agree is on the prospect of a turbulent stock market year. Volatility surged with the crisis, but unlike other episodes of turmoil in the markets, it has remained at a high level since. However, more than 3 in 5 institutions say they expect volatility to rise again in the coming year. An opinion shared by some professionals. “In view of sectoral divergences, high valuations and the increased risk of sudden turnover, the year 2021 will require the delicate exercise of finding a balance between risks and opportunities, but also, of acting quickly according to the evolution of conditions ”, adds Romain Boscher, global director of equity management at Fidelity.