Mutual fund, hedge fund and private equity managers fear the impact of inflation but are optimistic about the prospects for U.S. and Asian equity markets over the next 12 months, according to survey data published Monday by RBC Capital Markets.

The 102 asset management respondents, who manage a combined total of approximately US$4.1 trillion of assets, also project a slow global economic growth recovery and express skepticism about commercial real estate.

The data was compiled as part of a larger study of 440 senior corporate and finance executives worldwide, commissioned by RBC Capital Markets and conducted by the Economist Intelligence Unit.

Thirty-eight per cent of suvey respondents selected currencies as the asset class they are most likely to increase in light of the sovereign debt crisis, 37% chose equities and 35% commodities.

Perhaps reflecting concerns over levels of government borrowing, just 17% plan to increase their allocations to U.S. Treasuries and 21% to non-U.S. sovereign debt over the coming year.

The asset managers surveyed say they are skeptical about commercial real estate in their own markets, with 46% of those surveyed saying that commercial real estate risk is higher this year than last. Just one-quarter (24%) plan to increase their allocation to commercial real estate in the coming year.

Inflation remains a top concern. The debate on inflation versus deflation rages on, with 45% of respondents saying that inflation poses a greater threat to portfolio performance than deflation (chosen by 34%). Sixty per cent expect inflation to be higher over the coming year.

U.S. and Asian equity markets projected higher, European equity markets mixed

The majority of those surveyed (66%) believe that U.S. equity markets will improve in the year ahead, with 19% believing they will go lower and 14% expecting no change. Although most of those surveyed believe the U.S. equity markets will go higher this year, 57% said that the risk associated with equities in general is higher this year compared to last.

A substantial majority (69%) of those surveyed also believe that Asian equity markets will rise over the next 12 months, but only 38% expect European equity markets to rise. Forty per cent expect European equity markets to decline over the next 12 months.

Slow economic recovery

Nearly half of the asset managers surveyed (44%) expect that global economic growth over the next two years will resume but at a pace lower than during 2003-07, with an additional 39% expecting low but positive growth. Just 11% expect a prolonged period of economic weakness and 5% foresee growth at the same or higher levels than during 2003-07.

RBC Capital Markets commissioned the Economist Intelligence Unit to survey 440 senior executives from around the globe (North America (34%), Europe (41%), Asia Pacific (16%) and Rest of the World (9%), including both clients and non-clients of the firm, on their outlook for the future of capital markets. The survey was conducted April 28-May 25. A total of 102 asset managers were surveyed, including executives and managers from mutual funds and other registered investments, hedge funds and private equity funds.

IE