High Net Worth investors prefer Europe over US equities

19th May 2016

High net worth investors are now more optimistic about European equities over the US a survey of 800 high net worth investors from seven European cities shows. In terms of very broad classes of asset, it shows them them favouring private equity as the expected best performing asset class in 2016.

The survey by J.P. Morgan Private Bank sees clients favouring equities next and then investment through hedge funds.

Equities expected to be the best-performing asset classes

Some 33% of HNWs favoured private equity, followed closely by public equity markets (28%) – a contrast to 2015 where over half of investors believed equities would perform the best. Hedge funds also attracted some attention, with 16% of investors expecting them to provide good returns over the next year, while clients also thought commodities (14%) would fare well.

Additionally, over the past two years there has been a clear shift among investors when it comes to geographical allocation for equities, with the majority now favouring European equities over the U.S. This year, nearly half (47%) of investors see European equities outperforming other regions, while 35% still believe U.S. equities will lead the way this year.

 Risks for financial markets in 2016

Following a shaky start to the year, a number of factors are worrying financial markets worldwide, including a surprise geopolitical event. In Europe, Brexit and Spain’s general election are the focus, while many are watching the U.S. the presidential race closely. Client fears surrounding the Chinese economy also remain, with 30% believing they could suffer a hard landing this year. Some regional variations can also be observed, with over half of German investors (52%) mostly concerned about global geopolitics, whilst Spanish investors (9.6%) fear this the least.

More than half believe US interest rates will remain below 1%

When asked where the U.S. Federal Reserve Federal Funds rate is expected to be by the end of 2016, a large proportion of investors (37%) believe rates will rise to between 1% and 1.5%. However, caution remains amongst some investors, with over half (59%) expecting the Federal Funds rate to remain under 1% for the year. Geographical opinion is consistent across Europe, except for Spain where there is an even divide between investors who think rates will remain under 1% and those who believe it will rise towards 1.5%.

Oil price remains a concern in 2016

Three-fifths (61%) of clients believe oil prices will remain close to where they currently reside between $30 and $40 per barrel for the rest of 2016, while a third (28%) are slightly more optimistic, expecting prices to rise to between $40 and $50. In 2015, a third of investors correctly predicted that oil prices would fall to between $30 and $45 a barrel. A portion of respondents (14%) expect oil prices to drop again and predict prices could slip to below $30, whilst only 6% think they will rise to above $50 by the end of the year.

“Despite uncertainty from global monetary policies, China’s slowdown and plunging commodity prices, our clients remain positive about the investment environment.” said Peter Gabriele, EMEA head of investments at J.P. Morgan Private Bank.

* More than 800 high-net-worth investors participated in a Private Client survey which polled participants on key European, U.S. and global investment issues, ranging from interest rates to oil prices. It was conducted as part of J.P. Morgan Private Bank’s latest Investment Insights series, held in seven of Europe’s leading cities earlier this year

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