This week’s market action proved, definitively, that Europe is still the primary macro driver. As earnings season ramped up and QE rumors started it looked like Europe was taking a back seat. But that’s clearly not the case. The latest Credit Suisse Global Equity Investor Survey confirms this thinking. 54% of respondents say the biggest risk to the global economy remains Europe:
“Unsurprisingly, respondents continue to see the Euro-area crisis as the main threat to global growth over the next twelve months (54% of respondents, compared to 47% in the survey at our macro conference in May). However, the big change is China. In our May survey, only 1% respondents saw China as the most significant threat; this figure has now risen to 24% (for details on our own concerns about Chinese growth, see our report Q3 asset allocation: stay overweight equities, July 18).
Only 17% of respondents in our survey see the US fiscal cliff as the most significant macro risk, compared to 48% in May. However, US-based investors appear more concerned about the US fiscal cliff than their European peers, with 24% seeing it as the most important threat to the global growth outlook, compared to only 13% of UK respondents and 19% of those in Continental Europe.
Our view is that the actuality of the fiscal cliff itself could be a non-issue (we think fiscal tightening of 1½% of GDP is likely, compared to fiscal tightening of 1% of GDP in 2012). However, the threat of the the fiscal cliff may mean that corporates postpone capex and employment decisions to Q1 2013 when they hope there will be greater visibility on both the fiscal cliff and debt ceiling negotiations. The recent decline in CEO business confidence and Philly Fed capex spending intentions are signs that this might already be happening.”
Source: Credit Suisse
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.