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A tale of two confidence surveys

28 January 2011 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

Will equities provide a better total return this year than last? Although it’s almost impossible for anyone to answer this question successfully there are always a handful of investment professionals willing to try. But the views expressed by different se

On the one hand, we have…

The Ernst & Young survey concludes that confidence in the asset management industry rose in the fourth quarter of 2010, in line with strong growth in the local equity market. A quick look at final quarter returns shows a 9.04% surge in local equities (per the JSE All Share index) over the period. The global leader in assurance, tax, transaction and advisory services added that the improvement in confidence in the final slice of 2010 more than compensated for the decline in the third quarter.

What other gems did the 32nd quarterly survey, based on research by the Bureau for Economic Research in Stellenbosch deliver? The asset manager confidence “score” jumped from 71 index points (for the three months ending 30 September) to 89 points by year end. And it ranked the financial services sector, ahead of banking and insurance as the preferred sectors of the fund managers surveyed. The survey also determined that large asset managers (assets under management of R20 billion or more) were brimming with confidence – while small manager confidence was more subdued.

Chris Sickle, the lead Asset Management director at Ernst & Young commented on the 92 points recorded for large asset manager confidence: “With the strengthening in confidence of large asset managers, levels are considerably above the long-term overall average reading of 85.” He observed that the latest survey results confirmed the close correlation between stock market performance and fund manager confidence. We’ll call it the ‘market up – fund manager happy’ hypothesis...

And on the other

But not everyone is confident right now. Sanlam Investment Mangers (SIM) tags their latest investor confidence research with the line: Investor confidence in recovery still fragile despite success of 2010... The ICI results for January 2011 suggest investor confidence in the sustainability of the market recovery remains shaky at best. It seems the market has simply recovered too quickly for comfort. Candice Paine, head of SIM Retail reminds us that the JSE All Share index delivered 30.7 percent in US dollars through 2010. We trashed Europe, where the MSCI Europe Index ended 1% stronger. And we trashed the global emerging markets which managed 16.4%.

How does SIM measure investor confidence? They simply request respondents to comment on the percentage change they expect to see in the JSE All Share index, over different time periods. Only 65% of respondents expected a positive outcome over January 2011. “Few respondents in both the institutional and financial planners’ groupings considered the market cheap during 2010, and this notion persists,” said Paine. In the latest survey 44 of every 100 respondents said the market was “not too high”, but the percentage has steadily declined during 2010, after topping at 72% in June. The survey confirmed that financial planners were more optimistic than institutional investors, with half of the planners saying the market was overheated versus more than two thirds of institutional investors!

The value of financial planners

What can the man-in-the-street do to obtain maximum mileage from equity investments through 2011? Gerda van der Linde, executive director at the Institute for Behavioural Finance (IBF), believes commonsense should prevail. “We continue to urge investors not to ignore market fundamentals in a desire for instant gratification,” she says. “The message from participants in the SIM ICI is that stock prices in South Africa when compared with measures of true fundamental value are mostly expensive.” Investors will have to moderate their return expectations for the current year. She encouraged investors to make use of the services of licensed certified financial planners to guide their investment decisions because they follow a scientific financial planning process to establish the risk capacity, risk required and risk tolerance of each individual investor.

If you work with a financial planner to ensure your asset allocation is properly mapped out you’ve got a great chance of charting a successful path through the markets this year. And that means surviving what US Federal Reserve chair Ben Bernanke refers to as “unusually uncertain” economic times.

Editor’s thoughts: Beginning 2010 we were warned to expect moderate returns from equity investments, yet the JSE All Share index ended the year around 16% to the good. It seems the jury is out on 2011 returns with an even scattering of pessimists and optimists. For my part I think the 2011 result will probably echo that of last year. Would you position yourself in the “confident” Ernst & Young camp – or do you side with the slightly less confident view presented by the SIM survey? Add your comment below, or send it to


Added by Graham Thompson, 31 Jan 2011
I think there are two major reasons for the discrepancy between the two surveys: i) The EY confidence survey was conducted in the middle of the 4th quarter 2010, two months prior to the Sanlam survey. ii) The EY survey measures confidence of asset managers, NOT confidence of investors. Two very different groupings, so one should not necessarily be surprised by the divergence of findings.
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