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 2012 Global Survey of Investment and Economic Expectations - Towers Watson
 

2012 Global Survey of Investment and Economic Expectations - Towers Watson

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A global Towers Watson survey reveals investment managers' renewed concerns about recession and financial risks, driven by slower-than-expected economic recoveries in most developed markets and ...

A global Towers Watson survey reveals investment managers' renewed concerns about recession and financial risks, driven by slower-than-expected economic recoveries in most developed markets and nervousness around the potential implications of the Eurozone sovereign debt crisis. View the results and analysis.

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     2012 Global Survey of Investment and Economic Expectations - Towers Watson 2012 Global Survey of Investment and Economic Expectations - Towers Watson Presentation Transcript

    • 2012 Global Survey of Investment and Economic Expectations Expert views on capital markets, economy, investment and governanceMarch 2012© 2012 Towers Watson. All rights reserved.
    • Table of Contents About the Survey I. Profiles of Survey Respondents II. Capital Market Expectations III. Macroeconomic Forecasts IV. Investment and Governance 2 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • About the Survey 3 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • About the Global Survey Objectives:  Seeking investment managers’ views on prospects for capital markets and global economies  Identifying governance issues and investment strategies of leading institutional investors and investment managers Survey fielded from Dec. 1, 2011, through Jan. 6, 2012 Opinions of investment managers, economists, strategists and market analysts  114 responses in this global survey  For the U.S. and Canada only, 43 responses were added from the Canadian Survey of Economic Expectations (fielded in Nov. 2011) on a few indicators such as real GDP growth, inflation, government bond yields, equity return, etc. 4 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • I. Profiles of Survey Respondents 5 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Respondents have a worldwide business presence, and theoverwhelming majority of them have 10+ years of experiencein the investment industry Years of Experience in Geographic Focus the Investment Industry Other 1 – 5 years 6 – 10 years 8% 30+ years 1% 6% Asia Pacific Global 15% 8% 23% 11 – 15 years Europe 24% 7% 26 – 30 years 13% 21 – 25 years 18% 16 – 20 years 23% North America 54% N = 158 N = 110 6 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Assets under management  Institutional — Average $74.1 billion, total $7.8 trillion  Retail — Average $29.9 billion, total $1.9 trillion Institutional Retail $0 – $100m $50b+ $50b+ 9% $0 – $100m 16% 16% 19% $100m – $1b $20b – $50b 20% 3%$20b – $50b $10b – $20b 10% 3%$10b – $20b 7% $100m – $1b $1b – $10b 31% 28% $1b – $10b 38% N = 105 N = 64 7 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com
    • II. Capital Market Expectations 8 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Managers expect modest equity returns (particularlydepressed for the U.K. and Eurozone) and significantdownside risks in 2012 2012: Equity Return (%) 19.1 15.0 15.0 15.3 16.6 14.0 14.6 7.4 8.0 6.3 7.0 7.6 7.0 7.0 7.8 4.2 5.0 6.0 5.1 5.0 3.6 -1.8 -3.5 -4.7 -9.0 -10.0 -10.0 -10.0 U.S. U.K. Euro Zone Canada Australia Japan China 2012: Equity Return (std. dev. %) 36.3 30.0 30.6 25.3 25.0 25.0 25.0 25.0 22.4 23.0 22.4 20.0 17.5 18.0 18.9 17.5 16.6 17.6 17.5 15.0 16.0 10.0 10.0 10.0 10.0 10.0 10.0 8.0 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 9 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • A more cautious view has developed in recent years Equity Return for 2012 (%, Median Projection) 14.5 10.5 10.0 10.0 10.0 10.0 8.8 9.0 8.5 9.0 9.0 9.0 8.0 8.0 7.8 7.0 7.0 7.0 6.0 6.0 5.5 5.0 5.0 5.0 5.0 U.S. U.K. Eurozone Canada Australia Japan China 2009 survey 2010 survey 2011 survey 2012 surveyTotal return on S&P 500 Index 1962 - 2011: average 9.2%, std. dev. 17.7%Canada was not listed in prior surveys. The 2009 and 2010 surveys listed “Asia excl. Japan” instead of “China.” 10 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Managers anticipate muted equity returns in the long term Next 10 Years: Equity Return (%) 15.0 13.3 11.0 11.1 10.0 10.0 10.2 9.1 7.5 8.1 8.0 8.0 7.0 6.6 6.5 7.1 7.0 6.4 6.4 5.0 5.0 5.4 5.0 5.0 4.7 2.8 1.9 1.6 U.S. U.K. Euro Zone Canada Australia Japan China Next 10 Years: Equity Return (std. dev. %) 28.6 29.4 30.4 25.0 25.0 24.0 22.4 21.0 21.7 19.7 20.0 17.4 16.0 16.5 17.3 16.4 15.7 15.0 15.7 15.0 15.8 10.0 10.5 10.0 6.9 6.9 7.5 5.5 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 11 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Government security yields are expected to remain aroundhistorical lows in 2012… 2012: 3-month Government Yield Rate (%) 6.0 4.5 3.8 3.4 3.2 3.0 1.5 1.7 2.0 0.4 1.8 1.0 0.5 0.7 1.1 1.0 1.0 0.3 0.2 0.5 0.5 0.1 0.1 0.0 0.0 0.5 0.0 U.S.0.0 U.K. Euro Zone Canada Australia Japan China 2012: 10-year Government Yield Rate (%) 10.0 6.4 6.0 5.0 4.3 4.1 4.4 4.0 4.0 3.7 3.2 3.1 2.5 2.5 2.7 2.5 2.5 2.9 2.5 3.0 2.0 1.8 2.0 2.0 2.0 1.4 1.2 1.0 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 12 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • …and rise over years, modestly and gradually Next 10 Years: 3-month Government Yield Rate (%) 5.7 6.0 5.0 4.2 4.4 4.0 4.1 4.0 3.3 3.7 2.7 3.0 2.6 2.8 2.9 3.0 2.1 2.0 2.4 2.4 1.4 1.2 1.0 1.0 0.9 1.0 0.5 0.0 U.S. U.K. Euro Zone Canada Australia Japan China Next 10 Years: 10-year Government Yield Rate (%) 10.0 6.8 7.0 6.8 7.4 6.4 5.6 5.5 5.7 4.6 4.5 4.5 5.0 4.3 4.1 4.4 4.4 4.0 4.0 3.9 3.0 3.5 2.8 2.9 2.8 2.2 2.0 1.0 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 13 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Downward movement in forecasts of government yields reflectactual realizations in the prior year, as most economies remainrelatively weak 10-year Government Bond Yield (%, Median Projection) 6.0 5.5 5.0 4.8 4.0 4.0 4.0 4.0 4.0 4.0 3.8 3.8 3.5 3.5 3.0 3.0 3.0 2.5 2.5 2.5 2.5 1.6 1.4 1.1 1.2 U.S. U.K. Eurozone Canada Australia Japan China 2009 survey 2010 survey 2011 survey 2012 surveyU.S. 10-year Treasury yield was 6.8% on average over 1962 - 2011 and 2% at the end of 2011.Canada was not listed in prior surveys. The 2009 and 2010 surveys listed “Asia excl. Japan” instead of “China.” 14 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Sovereign debt default and government interventions are topissues for investment analysis Most Relevant Issues for Investment Analysis Over the Next 5 Years 48% 46% 36% 33% 28% 29% 19% 13% 11% 7% 7% 8% 4% 4% 3% 2% 0% a b c d e f g h i j k l m n o p q a. Globalization g. Currency (de)appreciation m. Scarcity of natural resources b. Global economic imbalance h. Inflation n. Corporate governance c. Sovereign debt default i. Rise of emerging economies o. Management of human resources d. Trade protectionism j. Demographic changes p. Government intervention, e. Financial stability k. Terrorism including monetary, fiscal and legislative/regulatory measures f. Oil prices l. Environmental change q. Other 15 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • There is renewed concern about financial stability, attributableto the Eurozone debt crisis and decreased worries aboutinflation, despite global quantitative easing Top Issues for Investment Analysis 69% 51% 46% 48% 49% 48% 44% 43% 45% 45% 42% 39% 36% 33% 32% 28% 23% n/a n/a n/a Global economic Sovereign debt default Financial stability Inflation Government imbalance intervention 2009 survey 2010 survey 2011 survey 2012 survey 16 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Managers are bullish about emerging markets, public equities,and high-yield bonds over the next five years… Modestly bullish Strongly bullish 57% 59% 49% 45% 50% 50% 44% 33% 32% 20% 18% 14% 14% 13% 10% 6% 5% 4% 5% 5% 2% 5% 17 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • …and bearish about government bonds and money market,presumably driven by the Eurozone crisis Modestly bearish Strongly bearish 42% 28% 40% 26% 35% 19% 28% 21% 12% 14% 8% 15% 5% 5% 2% 3% 2% 4% 3% 1% 7% 2% 2% 18 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • III. Macroeconomic Forecasts 19 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Reference: Actual economic statistics around the survey time U.S. U.K. Eurozone Canada Australia Japan China Real GDP growth (%)* 1.5 0.5 1.4 2.4 2.1 -0.7 8.9 Unemployment rate (%) 8.5 8.4 10.3 7.5 5.2 4.5 4.1 CPI inflation (%) 3.0 4.2 2.7 2.3 3.5 -0.5 4.1 Central bank interest rate (%) 0.3 0.5 1.0 1.0 4.3 0.0 6.6 3-month government yield (%) 0.0 0.2 0.0 0.8 4.0 0.1 4.0 10-year government bond yield (%) 1.9 2.0 2.7 2.0 3.8 1.0 3.4*Latest quarter available in 2011 over the same quarter in 2010 20 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com
    • Looking ahead, managers expect growth to be fast in Chinaand Australia, moderate in the U.S. and Canada, and moresluggish in the Eurozone, the U.K. and Japan 2012: Real GDP Growth Rate (%) 9.0 7.6 8.0 5.0 4.0 3.0 2.8 3.2 2.8 3.0 3.0 2.0 2.0 1.8 2.2 2.1 1.0 1.0 1.3 1.5 0.5 0.9 0.7 -0.2 0.0 0.0 -0.9 -2.0 U.S. U.K. Euro Zone Canada Australia Japan China Next 10 Years: Real GDP Growth Rate (%) 9.0 6.8 7.0 4.9 4.0 4.1 4.1 2.6 3.3 3.0 2.8 3.2 3.0 2.5 2.1 2.0 2.5 2.6 1.5 1.7 1.5 1.8 2.3 1.5 1.5 1.0 1.0 0.5 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 21 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Managers are adjusting down their expectations of real GDPgrowth across economies One-Year Ahead Real GDP Growth Rate (%, Median Projection) 8.9 8.0 7.0 3.0 3.0 3.2 3.0 2.5 2.5 2.0 2.0 2.1 1.7 1.8 1.5 1.5 1.5 1.0 1.2 0.0 0.0 -0.5 -1.0 -1.0 -1.0 U.S. U.K. Eurozone Canada Australia Japan China 2009 survey 2010 survey 2011 survey 2012 surveyCanada was not listed in prior surveys. The 2009 and 2010 surveys listed “Asia excl. Japan” instead of “China.” 22 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Unemployment is expected to remain a tough challenge,especially for the Eurozone 2012: Unemployment Rate (%) 14.7 11.4 10.6 10.6 9.9 8.5 8.5 8.6 8.5 8.0 8.4 7.3 7.3 8.0 7.5 7.7 7.2 5.7 6.0 5.7 5.4 4.9 4.7 4.5 4.8 4.3 3.0 2.3 U.S. U.K. Euro Zone Canada Australia Japan China Next 10 Years: Unemployment Rate (%) 12.0 10.0 9.0 9.0 9.0 8.4 8.0 6.9 7.0 7.2 7.0 6.5 7.0 6.0 6.4 6.0 5.0 5.1 5.0 5.3 5.0 4.8 4.9 4.9 4.0 4.5 3.5 2.3 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 23 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Expansionary monetary policies are expected to hold in 2012,with exceptionally low interest rates, and gradually tightenover the years ahead 2012: Central Bank Interest Rate (%) 6.5 4.9 4.7 5.0 3.7 4.0 3.0 2.0 1.2 1.2 1.6 1.0 1.0 0.8 1.0 0.1 0.5 0.5 0.8 1.0 0.3 0.3 0.0 0.0 0.1 0.1 0.0 0.0 U.S. U.K. Euro Zone Canada Australia Japan China Next 10 Years: Central Bank Interest Rate (%) 7.1 6.0 5.0 4.9 5.3 5.0 4.9 4.6 4.7 4.4 3.0 3.3 3.0 3.1 2.6 2.9 2.7 2.9 2.5 2.5 1.8 1.9 1.0 1.1 0.7 0.5 0.5 0.0 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 24 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Inflation is viewed as a moderate risk, but with a wide range ofpossible outcomes, tending to the upside for years to come 2012: CPI Inflation Rate (%) 7.5 5.0 4.5 3.6 3.7 4.0 4.0 3.5 3.2 3.0 3.0 3.0 2.9 2.3 2.3 2.3 2.5 2.0 1.7 2.0 2.0 2.0 1.5 1.0 1.0 0.3 0.0 -0.8 U.S. U.K. Euro Zone Canada Australia Japan China Next 10 Years: CPI Inflation Rate (%) 6.7 5.6 5.0 4.7 4.6 4.2 4.5 4.1 2.9 3.0 2.9 2.7 3.1 3.0 3.0 2.5 2.3 2.5 2.2 2.7 1.9 2.0 2.0 1.5 1.0 0.8 0.8 0.0 U.S. U.K. Euro Zone Canada Australia Japan China 95%tile Median Mean (in square) 5%tile 25 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Managers expect major currencies to maintain stable values,despite the Eurozone crisis, and Chinese RMB to appreciate,gradually 2012: Exchange Rate 1.6 1.5 1.6 1.5 1.4 1.3 1.3 1.1 1.1 1.1 1.0 1.0 1.0 1.0 1.0 0.9 0.85 0.79 0.80 0.65 0.72 0.61 0.62 0.54 GBP/US$ Euro/US$ US$/CAD AUD/US$ US$/JPY/100 US$/RMB/10 Next 10 Years: Exchange Rate 1.8 1.6 1.6 1.5 1.4 1.3 1.2 1.2 1.1 1.0 1.0 1.0 1.0 1.0 0.93 0.9 0.8 0.84 0.85 0.68 0.62 0.54 0.55 0.44 GBP/US$ Euro/US$ US$/CAD AUD/US$ US$/JPY/100 US$/RMB/10 95%tile Median Mean (in square) 5%tile 26 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Oil prices are expected to rise at a fairly mild pace WTI Crude Oil Price (US$/barrel) 150.0 120.0 119.6 120.0 98.2 100.0 80.5 80.0 2012 Next 10 years 95%tile Median Mean (in square) 5%tileYear-end 2011 actual price: $98.5/barrel. 27 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • IV. Investment and Governance 28 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • In 2012, the U.S. is viewed as the region of most rewardinginvestment opportunities 44% 21% 13% 8% 7% 5% 2% 0% U.S. China Other Australia Euro-zone Canada Japan U.K. 29 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Institutional investors are expected to revert to moreconservative strategies, reflective of poor prospects in manyasset classes Investment Strategy of Institutional Clients 49% 50% 43% 40% 29% 26% 24% 23% 22% 23% 22% 20% 11% 5% 3% 2% 2% 1% 3% 0% Substantially more Modestly more Roughly no change Modestly more Substantially more conservative conservative aggressive aggressive 2009 survey 2010 survey 2011 survey 2012 survey 30 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • There is little doubt among managers about economic andpolitical difficulties ahead What Will Happen Over the Next 5 Years? Yes, this will happen Yes, but only to a limited extent 69% No, this will not happen. 55% 50% 48% 41% 43% 43% 37% 26% 24% 21% 15% 13% 11% 5% a b c d e a. As a result of recent events, risk appetites of investors, particularly of individuals, will diminish b. There will be further periods of financial instability and crisis, but investors will continue to shift their investment focus to the Asia Pacific region c. The industry will face increased regulatory burden, increasing its costs with mixed but net positive results regarding the effectiveness of this regulation d. The economic and political conditions will be very difficult, with lower-than-average growth trend in many economies e. Savings rates will increase, and consumer consumption will fall, creating impediments to economic growth 31 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Towers Watson Investment’s views — Base case U.S. debt to GDP by issuing sector: Rise in sovereign debt, but fall in overall debt levels 400% Foreign “Bumpy ride” as a levered 350% Financial developed world economy 300% Non-financial Business Households delevers over time State and local Government 250% Federal Government Anemic and volatile developed 200% world economic growth and 150% market performance over the next 100% 5+ years, with low to moderate 50% inflation 0% 70 75 80 85 90 95 00 05 10 Sources: Thomson, Towers Watson U.S. housing markets — House prices versus mortgage debt The housing market is key for a 260 US S&P/Case-Shiller National Home Price U.S. recovery Indexed at Q1 2000 = 100 240 Index US mortgage debt 220 Negative equity of many U.S. 200 households is a headwind* 180 160 We see the risks skewed toward 140 deflation rather than inflation 120 100 80 2000 2002 2004 2006 2008 2010*See Global Markets Overview, Towers Watson Investment, Source: U.S. Bureau of Economic Analysis, Standard & Poor’s December 2011. 32 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Towers Watson Investment’s views —For more information Global Markets Our Global Overview Investment Committee’s views on the economy and the markets are published monthly. Asset Return Our capital market Assumptions assumptions are updated quarterly and are available to clients. 33 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • Contact details Carl Hess  212 309 3800  carl.hess@towerswatson.com Matthew Stroud  212 309 3835  matthew.stroud@towerswatson.com 34 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com
    • DisclaimerThe information included in this presentation is general information onlyand should not be relied upon without further review by the appropriateprofessional advisors. Towers Watson is not a law firm or accounting firm,and we are not providing legal, accounting or tax services or advice.Additionally, material developments may occur subsequent to thispresentation rendering it incomplete and inaccurate. Towers Watsonassumes no obligation to advise you of any such developments or toupdate the presentation to reflect such developments.This document may not be reproduced or distributed to any other party,whether in whole or in part, without Towers Watson’s prior writtenpermission, except as may be required by law. 35 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com