February 5, 2018 / 3:37 PM / a year ago

Breakingviews - Cox: Sliding stocks don’t surprise our readers

NEW YORK (Reuters Breakingviews) - The recent stock-market rout couldn’t have caught most Breakingviews readers off guard. Even before the S&P 500 Index lost nearly 5 percent of its value in five days, surveys of participants conducted at “Predictions 2018” events held in eight financial centers over the past two months pointed to something of a consensus: equity investors were already too exuberant. Where they differ, however, is on what it will take to shake stock prices from their lofty positions.

A specialist trader is reflected on his screen on the floor of the New York Stock Exchange August 25, 2015. REUTERS/Brendan McDermid

This year’s unscientific poll of Breakingviews customers took place at live events in Mumbai, Tokyo, Hong Kong, Singapore, Toronto, New York, London and Milan discussing our book of predictions, “Froth and Frustration.” In addition, we polled 1,100 Thomson Reuters clients in North America in an online webinar at the start of the year. There was uncanny agreement that investors are underestimating risk. Similarly, nearly everyone who was asked called bitcoin a bubble. And there weren’t many fans of U.S. President Donald Trump.

More surprising, perhaps, were the regional takes on happenings that have the potential to shape global markets, economies and corporate finance in the coming year. In Toronto, for instance, a large majority of those attending think Canada can weather Trump pulling the plug on NAFTA, the North American trade pact. Italians are sanguine about the possibility of a hung parliament after next month’s elections. And respondents to a question about Brexit at our London panel suggested the country’s divorce from the European Union may never actually occur.

Every year for more than a decade, Breakingviews has published a collection of articles on what to expect in the year ahead. Our readers have views, too, and like ours they can miss as well as hit. A year ago, most favored the United States as an investment destination, partly due to worries about elections in France, Germany and the Netherlands. Yet European shares, adjusted for the dollar’s decline, largely outperformed the S&P 500 last year as pro-EU candidates prevailed. Readers rightly predicted that tech stocks, led by Amazon, would outperform. The online retailer rose by more than half in 2017.

When it comes to the current state of the equity market, Breakingviews readers and event participants around the world seem to be a relatively homogenous lot. When asked “overall, stock-market investors are ...” two-thirds of New Yorkers opted for the multiple-choice answer “too exuberant.” So did 60 percent of North American respondents in our online poll.

Much of the rest of the world agreed, including 58 percent of respondents in Toronto, 59 percent in Hong Kong and 55 percent of Londoners. The exceptions proved to be people present at Singapore’s predictions party and those at last week’s in Milan, the last held in the series. In both cases, 48 percent said investors are “appropriately positioned.” Only 36 percent of Italians and 38 percent of Singaporeans agreed with their global compatriots’ more bearish view.

When asked what they perceived to be the biggest risk to global markets, Trump almost universally topped the list, though the results were more evenly distributed. Hong Kongers were the most concerned by Trump, with nearly half fingering him as the top risk. Yet in Hong Kong, 37 percent of those polled rated the Trump presidency an “F” for fail, rather than the other grades on offer, namely A, B or C. That was fewer than those polled in New York, where half gave the president the worst rating.

The leading concern for markets and economies, according to Londoners, was central-bank surprises. In New York, Trump led, but China’s debt came in second, followed by crypto-currencies. In the online webinar, central-bank surprises followed Trump in the rank order of risks. When asked what could derail ASEAN markets and economies, Singapore respondents fretted most about rising U.S. rates.

Perhaps the most revealing questions were those related to more regional matters. In Toronto, when asked what would be the impact on Canada if Trump pulls the plug on NAFTA, 77 percent of respondents chose “minor pain, Canada can diversify.” Only 15 percent believed NAFTA’s demise would be a “huuuuge disaster,” to use Trump’s parlance.

When London participants were asked “When will Britain actually leave the European single market?” 45 percent opted for “never,” a larger number than those choosing March 2019 or 2021, combined. As with the Canadian view on NAFTA, this may better reflect the optimism, or biases, of the type of people who come to Breakingviews events rather than those of the general public.

Similarly, respondents at our first-ever event in Mumbai at the end of November were asked to rank the spending priorities for India’s government led by Prime Minister Narendra Modi. They chose infrastructure, at 36 percent. The results of the snap audience poll surprised our panelists, who argued that more basic needs like education and health, which came in at 30 percent and 32 percent, respectively, were critical to improving the country’s welfare.

Less surprising, perhaps, is that 41 percent of Milanese, when asked “What is the top thing Italy needs to attract capital?” chose a functioning judicial system over lower corporate taxes and more flexible labor laws. And the biggest worry about the March 4 election by half of those polled in Milan was not the likelihood of a hung parliament - just 14 percent – but that populists, represented by parties like the 5-Star Movement, would emerge victorious.

Finally, on the matter of victors, we asked the audience in Milan to predict who will win the World Cup this summer, a sore point because Italy failed to qualify for the tournament after a shocking loss to Sweden. Without the national team to favor, Italians picked Brazil over Germany.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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