Seven out of 10 (71 per cent) institutional investors anticipate a global equity market correction of more than 10 per cent within 18 months, including nearly half (47 per cent) who expect it to happen within a year, according to new research by Managing Partners Group (MPG).
Only 12 per cent expect no correction at all.
Around a third (32 per cent) of those who anticipate a correction expect it will be up to 30 per cent. Over a third (36 per cent) expect a drop of between 10 per cent and 15 per cent and nearly another third (28 per cent) expect the fall to be between 15 per cent and 20 per cent.
The most likely reason for a slump is a run on equities sparked by fears they are overpriced, which was cited by 37 per cent. Other reasons include a black swan event (33 per cent); a geopolitical crisis such as North Korea (27 per cent); a rise in interest rates (25 per cent); a financial crisis in China (24 per cent); the cessation of quantitative easing (18 per cent); a financial crisis in Europe (16 per cent); western governments’ excessive debt (6 per cent); and a collapse in bond markets (4 per cent).
While a fifth (20 per cent) have already adjusted their portfolio another 37 per cent plan to do so in the near future. Of those who have adjusted, 90 per cent have reduced their exposure to equities and 30 per cent to fixed income. Two out of five (40 per cent) have raised their exposure to cash, 50 per cent to alternatives such as hedge funds and 40 per cent to real estate.
Jeremy Leach (pictured), Chief Executive Officer, Managing Partners Group, says: “Equities are looking highly valued on both sides of the Atlantic and it looks as though the market is just looking for an excuse to correct.
“Our research shows that a substantial proportion of investors now expect this to happen and many have already reduced exposure to equities while looking at alternatives. Hedge funds and real estate are obvious targets but it is also interesting that a fifth (20 per cent) of those who have already adjusted their portfolios raised exposure to asset-backed securities. It shows that investors are increasingly recognising their benefits, namely attractive annual income of 5-6 per cent over three- to five-year terms with the security of having first call on the underlying assets.”
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