Equities will be the best-performing asset class in the next 12 months according to 51 per cent of high net worth (HNW) investors in Europe, while a fifth (18 per cent) said oil could outperform in 2015, according to a report.

However, confidence in equities has fallen slightly since the Autumn 2014 survey when this figure was 58 per cent, said the latest Private Client Survey released by J.P. Morgan Private Bank, which reveals the expectations of High Net Worth (HNW) European investors on their prospects for investment returns, including which events could provide negative or positive surprise over the next 12 months.

Other investors are divided between European credit (12 per cent), US high yield (10 per cent) and hedge funds (10 per cent). There is a strong consensus about the outlook for investment returns among continental European investors. In contrast, UK investors believe European credit is most likely to outperform next year (35 per cent), followed by oil (29 per cent), equities (13 per cent), hedge funds (12 per cent) and US high yield (10 per cent).

Regional Equity Markets

Investors are divided over which regional equity markets are likely to outperform in 2015. The US is the overall winner with 30 per cent of the vote, while Southern Europe and Western Europe are in joint second place at 26 per cent respectively, followed by China / Asia in fourth place (11 per cent). Japan received just 6 per cent of the votes.

When compared to the Autumn 2014 survey, investors are less positive about the US, Western Europe, China / Asia and Japan, however they are considerably more optimistic about Southern Europe, which received just 16 per cent of the votes in the Autumn. There are some differences between views around Europe with investors in the UK the notable outliers

 An overwhelming 47 per cent of UK investors believe Southern Europe will outperform, while just 10 per cent believe the US will deliver the highest returns. All investors in our survey lack confidence in Abenomics; Japan appears at the bottom of the survey results across all countries.

US Treasury Yields

Almost half of investors (49 per cent) believe US 10-year Treasury yields will still be at current levels of close to 2 per cent by the end of 2015. Over a third (37 per cent) of investors believe they will have risen to between 2 per cent and 3 per cent. Meanwhile, 13 per cent of those polled say yields could fall below 1.5 per cent and just 2 per cent believe they could rise above 3 per cent. There is a broad consensus about these views across Europe. A large volume of UK investors (63 per cent) believe yields will remain at around 2 per cent, while no investors in the UK, Greece or Germany think they could rise above 3 per cent by the end of the year.

Brent Crude

Forecasting oil prices is challenging because there are so many unpredictable factors involved, however the survey asked investors to give it a go. Half (51 per cent) of investors believe Brent crude will remain between $50 and $60 a barrel in 2015, while over a third (34 per cent) think prices could rise back towards $70 to $75 a barrel. Fourteen per cent believe they could fall below $50, and just 1 per cent believe they will rise back to early 2014 levels above $90.

Views about the likely direction of oil prices in 2015 did not vary considerably by country. The highest proportion of investors who believe prices will fall below $50 is in Greece (28 per cent), amid hopes that lower prices might help fuel their struggling economy.

The biggest threats to markets in 2015

The survey also asked investors to highlight the key events that could disrupt markets most during 2015, and views varied considerably across Europe. The majority (33 per cent) of investors believe the rise of radical political parties in European elections pose the greatest threat. Investors in Greece (57 per cent) and Spain (54 per cent) are most concerned, while those in UK (10 per cent) are least concerned.

The second greatest concern was a decline in China’s property market (24 per cent of total votes), with UK investors most concerned (55 per cent). Loss of credibility for the ECB comes a close third (22 per cent). Fewer investors are worried about oil prices derailing the global investment cycle (12 per cent) or Fed policy mistakes (10 per cent).   

 The biggest positive event outliers to markets in 2015

When asked about their prospects for the global economy in 2015, investors appear optimistic. Some 41 per cent believe the pace of global growth could exceed expectations, supported by lower oil prices. Furthermore, a fifth (20 per cent) of investors believe Germany could surprise markets with a “pro-growth” fiscal plan for Europe, while a further fifth (19 per cent) believe there is a chance that multiple expansion could drive double-digit equity returns in Europe.

Meanwhile, 15 per cent of investors believe Asia could enjoy renewed economic growth driven by market reforms in India and China. However, investors are unconvinced about Japan’s prospects and the ability of Prime Minister Shinzo Abe to revive the economy. Just 5 per cent believe Abenomics could deliver a positive surprise in 2015.

César Pérez, global head of Investment Strategy at J.P. Morgan Private Bank, said: “The growth differential between the US and most other developed markets has resulted in monetary policy divergences. While the Fed is on a path toward normalization, both the Bank of Japan and the ECB will be increasing the size of their balance sheets. Global growth is recovering and is projected to rise by 3.5 per cent to 3.7 per cent this year, with developed markets driving the additional growth.”

 “Europe is at a crossroads in 2015. Unlike 2014, we believe the probability of the central scenario is lower, and tail risk probability will be higher. In Europe, fast credit growth is a potential positive tail event. While an increased risk of political disruption is a potential negative tail event, especially with several elections coming up in the Euro area, including Spain’s general election towards the end of the year.

“There is a strong consensus that equities will continue to be the outperforming asset class, with more than half of European clients agreeing. However, investors are divided over exactly which equity market is likely to outperform in 2015, with confidence in Southern Europe growing substantially. While we agree that there is potential for earnings recovery in Europe following the ECB’s QE announcement, the QE impact on equity markets will be highly selective, depending on the exposure to a weaker currency and export potential,” Pérez added. – TradeArabia News Service