Have we turned into a lemming?
Earlier this year, I found myself in a spat in the FT comment columns because I offered some investor sentiment data (as usual from my friends at CrossBorder Capital) which was at odds with the Bank of America (BoA) Fund Managers’ survey. As a reminder, BoA’s is a subjective survey of 174 (this month) large institutional investors’ investing intentions, whereas the data we use at Linchpin is an objective measurement of all financial assets. We don’t know who owns them but if the aggregate held in equities is a relatively high weighting (for example) we’d expect that to revert to the mean in due course, much as a portfolio manager overweight in equities relative to his/her benchmark will find a way to bring it back in line. Today the main sentiment messages from both data sets are more similar: risk appetite is declining but investors are still overweight equities and underweight bonds. They are weighted towards US equities, Japan is also favoured, and there is convergence in the expectation that economies will slow down and that US treasury yields are expected to rise further. At Linchpin we share the sober view about the economic outlook and are likewise concerned about rising bond yields. We are probably not far from the consensus in our view that equities need to go through a market correction of some sort in the near future. As natural contrarians, however, we are not particularly comfortable being with the masses. We begin to think that our fears or hopes are already discounted. Having said this - unlike many - we are firmly of the view that Emerging Markets are likely to be the best performers over the next downturn. It is an interesting reflection that over the 2008 Global Financial Crunch that was also the case, at least until central banks i) succeeded in stabilising the financial system and ii) continued to print money. We’d expect the same to happen this time round. If you think we are turning into another lemming, please tell us. If you would like to find out more about CrossBorder’s investor sentiment data, please click here.