Business & Money | Tuesday 14 April, 2015 12:50 am |

AND THE BIGGEST THREATS IN 2015

• Equities retain the confidence of investors (51%), while the number of investors who believe oil could outperform this year has doubled since 2014
• Overall 41% of European High Net Worth investors believe the pace of global growth could exceed expectations, supported by lower oil prices
• Spring Investment Barometer reveals a big increase in confidence in Southern Europe up from 16% to 26%
• 33% of investors see the rise in radical political parties in European elections as the biggest threat in 2015

Dubai, 13 April 2015 - J.P. Morgan Private Bank has revealed the expectations of High Net Worth (HNW) European investors in its latest Private Client Survey, on their prospects for investment returns, including which events could provide negative or positive surprise over the next 12 months.

Conducted as part of the Private Bank’s latest Investment Insights series, held between January and March 2015 across 14 leading European cities, more than 900 HNW investors participated in a Private Client survey* which polled participants on key European, US and global investment issues.

Asset Class
When investors were asked which asset classes they think will outperform over the next 12 months, an overwhelming 51% said equities will be the best-performing. However, confidence in equities has fallen slightly since the Autumn 2014 survey when this figure was 58%. In second place, following the dramatic fall in prices during the second half of 2014, is oil which a fifth (18%) of investors believe could outperform in 2015. Other investors are divided between European credit (12%), US high yield (10%) and hedge funds (10%). There is a strong consensus about the outlook for investment returns among continental European investors. In contrast, UK investors believe European credit is most likely to outperform next year (35%), followed by oil (29%), equities (13%), hedge funds (12%) and US high yield (10%).

Fig 1. Which asset class will outperform over the next 12 months?

Regional Equity Markets
Investors are divided over which regional equity markets are likely to outperform in 2015. The US is the overall winner with 30% of the vote, while Southern Europe and Western Europe are in joint second place at 26% respectively, followed by China / Asia in fourth place (11%). Japan received just 6% of the votes.

When compared to the Autumn 2014 survey, investors are less positive about the US, Western Europe, China / Asia and Japan, however they are considerably more optimistic about Southern Europe, which received just 16% of the votes in the Autumn. There are some differences between views around Europe with investors in the UK the notable outliers. An overwhelming 47% of UK investors believe Southern Europe will outperform, while just 10% believe the US will deliver the highest returns. All investors in our survey lack confidence in Abenomics; Japan appears at the bottom of the survey results across all countries.












Fig. 2 Which regional equity market will be the best performer in the next 12 months.

US Treasury Yields
Almost half of investors (49%) believe US 10-year Treasury yields will still be at current levels of close to 2% by the end of 2015. Over a third (37%) of investors believe they will have risen to between 2% and 3%. Meanwhile, 13% of those polled say yields could fall below 1.5% and just 2% believe they could rise above 3%. There is a broad consensus about these views across Europe. A large volume of UK investors (63%) believe yields will remain at around 2%, while no investors in the UK, Greece or Germany think they could rise above 3% by the end of the year.

Brent Crude
Forecasting oil prices is challenging because there are so many unpredictable factors involved, however the survey asked investors to give it a go. Half (51%) of investors believe Brent crude will remain between $50 and $60 a barrel in 2015, while over a third (34%) think prices could rise back towards $70 to $75 a barrel. 14% believe they could fall below $50, and just 1% believe they will rise back to early 2014 levels above $90.

Views about the likely direction of oil prices in 2015 did not vary considerably by country. The highest proportion of investors who believe prices will fall below $50 is in Greece (28%), amid hopes that lower prices might help fuel their struggling economy.

The biggest threats to markets in 2015
The survey also asked investors to highlight the key events that could disrupt markets most during 2015, and views varied considerably across Europe. The majority (33%) of investors believe the rise of radical political parties in European elections pose the greatest threat. Investors in Greece (57%) and Spain (54%) are most concerned, while those in UK (10%) are least concerned.

The second greatest concern was a decline in China’s property market (24% of total votes), with UK investors most concerned (55%). Loss of credibility for the ECB comes a close third (22%). Fewer investors are worried about oil prices derailing the global investment cycle (12%) or Fed policy mistakes (10%).


Fig. 3 What will be the biggest negative outlier event in 2015?

The biggest positive event outliers to markets in 2015
When asked about their prospects for the global economy in 2015, investors appear optimistic. Some 41% believe the pace of global growth could exceed expectations, supported by lower oil prices. Furthermore, a fifth (20%) of investors believe Germany could surprise markets with a “pro-growth” fiscal plan for Europe, while a further fifth (19%) believe there is a chance that multiple expansion could drive double-digit equity returns in Europe.

Meanwhile, 15% of investors believe Asia could enjoy renewed economic growth driven by market reforms in India and China. However, investors are unconvinced about Japan’s prospects and the ability of Prime Minister Shinzo Abe to revive the economy. Just 5% believe Abenomics could deliver a positive surprise in 2015.

César Pérez, Global Head of Investment Strategy at J.P. Morgan Private Bank, comments:

“The growth differential between the US and most other developed markets has resulted in monetary policy divergences. While the Fed is on a path toward normalization, both the Bank of Japan and the ECB will be increasing the size of their balance sheets. Global growth is recovering and is projected to rise by 3.5% to 3.7% this year, with developed markets driving the additional growth.

“Europe is at a crossroads in 2015. Unlike 2014, we believe the probability of the central scenario is lower, and tail risk probability will be higher. In Europe, fast credit growth is a potential positive tail event. While an increased risk of political disruption is a potential negative tail event, especially with several elections coming up in the Euro area, including Spain’s general election towards the end of the year.

“There is a strong consensus that equities will continue to be the outperforming asset class, with more than half of European clients agreeing. However, investors are divided over exactly which equity market is likely to outperform in 2015, with confidence in Southern Europe growing substantially. While we agree that there is potential for earnings recovery in Europe following the ECB’s QE announcement, the QE impact on equity markets will be highly selective, depending on the exposure to a weaker currency and export potential.”
Ends

Notes to Editors
*J.P. Morgan Private Bank recently held its 2015 Investment Insights series across 14 leading European cities, in which J.P. Morgan discussed their views on financial markets and investment conditions with private clients. During these conferences, over 900 clients participated in a Private Client Survey, in which J.P. Morgan Private Bank asked them six questions about the prospects for investment returns, including which events could provide a negative or positive surprise over the next 12 months. The survey results provide insights into the opinions of private clients and their investment sentiment along with J.P. Morgan Private Bank’s view on the questions asked.


About J.P. Morgan Private Bank

J.P. Morgan is a global leader in financial services to corporations, governments, for-profit and not-for-profit institutions and wealthy individuals. Through its private banking franchise, the firm delivers customized wealth management advice and solutions to wealthy individuals and their families, leveraging its broad capabilities in investing, tax and estate planning, family office management, philanthropy, credit, fiduciary services and special advisory services to help its clients advance toward their own particular goals. For more than 150 years, the Private Bank’s comprehensive and integrated product offering, commitment to innovation and integrity, and focus on placing the interests of its clients first and foremost have made J.P. Morgan an advisor of choice to people of significant wealth around the world.

J.P. Morgan Private Bank is a marketing name for the private banking business conducted by JPMorgan Chase & Co. and its subsidiaries worldwide.




About J.P. Morgan Private Bank

J.P. Morgan is a global leader in financial services to corporations, governments, for-profit and not-for-profit institutions and wealthy individuals. Through its private banking franchise, the firm delivers customized wealth management advice and solutions to wealthy individuals and their families, leveraging its broad capabilities in investing, tax and estate planning, family office management, philanthropy, credit, fiduciary services and special advisory services to help its clients advance toward their own particular goals. For more than 150 years, the Private Bank’s comprehensive and integrated product offering, commitment to innovation and integrity, and focus on placing the interests of its clients first and foremost have made J.P. Morgan an advisor of choice to people of significant wealth around the world.

J.P. Morgan Private Bank is a marketing name for the private banking business conducted by JPMorgan Chase & Co. and its subsidiaries worldwide.