Eastern economies to boom, while West takes a rest

Investment managers are optimistic about the markets in 2010, despite uneasiness around bond markets, according to Towers Watson survey. Fund managers are confident that higher equity returns and positive, albeit modest, economic growth will manifest a continued global recovery. Despite a large degree of uncertainty expressed about bond markets, this year’s findings show more optimism than managers expressed about the markets in last year’s survey. The survey was conducted at the end of 2009, and includes responses from 98 investment managers.

The survey indicates a strong West/East divide over the economic outlook for the next five years, with the West either having a delayed recovery or stagnation and the East (with the exception of Japan) expected to experience a boom. The survey found that respondents expect stock markets to revert to historical return levels in the next 10 years, while predictions about returns in 2010 are higher than these levels.

“The overall picture we get from this influential group is one of recovery, with established Western markets lagging the emerging markets on most measures,” said Carl Hess, Global Head of Investment, Towers Watson. “In addition, there is greater optimism than last year reflected in, among other things, an increase in the expected propensity of investors to take risk in 2010 and managers’ commensurate bullishness about risky assets. A further indication of optimism is the broadly held view in all markets except Japan, that government policies on the economy will be conducive to market stabilization and even to real economic growth in the next five years.”

The report also revealed that managers expect unemployment in 2010 to remain higher than in the recent past, but improve in all markets during the next 10 years, although some countries will stay fairly high by historical averages. They forecast unemployment to peak in Western, developed markets this year (10.5% in US, 8.5% in the UK, 10.7% in the Euro zone), but indicated that this has already occurred in Australia, Asia and Japan.