According to the February Sanlam Investment Management (SIM) Investor Confidence Index (ICI), investors are expecting negative performance from the market over the next three months, although the one-year figure is more optimistic.
On average, fund managers are expecting a 1,2% drop in the market in March with a 0,1% drop over the next three months. However, markets should start recovering in the second half of the year, ending up 6% higher in 12 months time.
“Following some exceptionally strong equity market returns since March last year, many market observers have been starting to talk about the possibility of a correction. During the last month there were a variety of ‘reasons’ that added weight to expectations that a correction could materialise, including the debt problems in Greece, president Obama’s proposal to implement stricter control over bank lending, uncertainty about whether the global economic recovery [and hence the outlook for earnings recovery] is indeed as strong as previously believed,” says Fredrick White, head of asset allocation and macro research at SIM.
The survey also highlighted concerns about valuations, with 58% of investors believing the market to be too expensive, although 5% of respondents believe it is still cheap. On the upside, asset managers believe that the probability of a crash has declined from last year from 19,8% to 16,2%.
Gerda van der Linde, executive director at the Institute for Behavioural Finance (IBF), an independent research organisation that conducted the survey, says this negative return expectation had been fuelled by continuous reporting in the global and local press that all is not well in the world of finance.
“The focus moved from the risk that banks and individuals might fail to manage their debt, to the risk that governments might be unable to manage their debt and show adequate fiscal discipline and governance. The result is an increase in the volatility of market sentiment and a subsequent increase in volatility of the markets. The social mood has been one of uncertainty as shown in the index results for the past months.
“At such times it is vital to guard against a collective emotional surge that may cloud logical facts and evidence. That said, evidence of negativity should also not be ignored. This may explain why this is the first month since the inception of the index that as many as 40% of respondents expect the market to continue on a negative trend the day after a 3% market decline”.