Rich investors betting on emerging equities

April 4, 2013

By Philip Baillie

Emerging equities may have significantly underperformed their richer peers so far this year (they are about 4 percent in the red compared with gains of more than 6 percent for their MSCI’s index of developed stocks) , but almost a third of high net-worth individuals are betting on a rebound in coming months.

A survey of more than 1,000 high net-worth investors by J.P. Morgan Private Bank reveals that 28 percent of respondents expect emerging market equities to perform best in the next 12 months, outstripping the 24 per cent that bet their money on U.S. stocks.

That gels with the findings of recent Reuters polls where a majority of the 450 analysts surveyed said they expect emerging equities to end 2013 with double-digit returns.

(Note a caveat on the survey – the responses were collated before recent unsettling events in Cyprus – which could have some knock-on effects on emerging markets, especially given the banking exposure to countries such as Slovenia, Luxembourg, Malta and Russia).

However, regardless of the growing list of risks, 60 percent of the investors pick equities as their top performing asset class for the next 12 months —  more evidence that the so-called Great Rotation — the offloading of bond holdings in favour of equities — remains a theme despite some growth and political risks.

This from Cesar Perez, Chief Investment Strategist for J.P. Morgan Private Bank in EMEA:

For the first time in four years we are not underweight in our global equities allocation…..Similar to respondents, we believe there is considerable value in global equity markets. In the current environment, we have tilted our equity allocations towards the U.S. and emerging markets, increasing exposure to Asian equities in early 2013.

Despite the tilt towards equities, almost half the  respondents cited global growth as their biggest investment concern. Politics (23 percent) geopolitical unrest (15 percent) and monetary policy mistakes (11 percent) also emerged as acute risk themes. A mere 4 percent worried about inflation.

Nevertheless,  14 per cent of those surveyed believe the supposedly riskier European periphery will perform better than the European core which garnered the votes of just 10 percent.  Interestingly, Japan, the best performing equity market so far in 2013 with gains of almost 20 percent, was least favoured at  just 6 per cent.

The J.P. Morgan Private Bank (assets of $878 billion) survey was conducted throughout January and February. See below for a graphic detailing the survey’s findings.

Equities to outperform over the next 12 months.
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