Recession expectations have increased, with around three quarters (73%) of professional investors believing a recession is near in the next two years, according to a report by Boston Consulting Group (BCG).
The study was conducted in 2018 with 260 investors representing firms, which oversee $12 trillion to $15 trillion in assets.
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In 2017, only 53% expected a recession. Meanwhile, 33% were found bullish regarding the market’s potential over the next 12 months, compared to nearly a half in the previous year.
BCG senior partner Alexander Roos said: “Given the intensifying concerns about the investment environment, valuations, and the economy, most investors want companies to do more to prioritise long-term value creation over short-term results.
“Many think management teams aren’t doing enough in this regard.”
Consensus in surveys
A survey of company CEOs released by PwC yesterday showed similar sentiment. Twenty-nine percent of the CEOs polled expect a decline in the global economy in 2019 versus just 5% last year.
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By GlobalDataOverregulation was the top concern among CEOs, followed by political uncertainty. “If CEOs’ confidence continues to be a leading indicator, global economic growth will slow down in 2019,” the report noted.
According to a public poll by Deutsche Bank Wealth Management’s Chief Investment Office (CIO) released last week, a trade war continues to be a major concern for investors, with 31% predicting it to be the most significant threat to global growth this year.
Investors favour organic reinvestment
Expectations for average annual total shareholder return (TSR) over the next three years stood at 5.6%, according to the BCG study. The figure is the lowest level since the firm started the surveys.
Investors were also found keener on long-term value creation, with 82% seeking such an approach from companies.
Moreover, 48% of investors expressed their preference for ESG investing as a way to drive long-term performance.
Investors said that 50% of the companies they invest in have properly aligned their business and investment strategies.
Besides, 43% said companies need to improve their capital allocation plans, while 37% expressed the need for companies to strengthen their strategic development.
Thirty eight percent of the investors believed companies need to enhance risk management processes.
Organic reinvestment emerged as the top capital allocation priority. The option was favoured by 64% of the investors.
On the other hand, preference for inorganic investments dropped with 39% of investors now favouring mergers and acquisitions as a preferred use of corporate cash. In 2017, the figure was 48%.
