Seventy-one percent indicated that the correction will happen within 18 months, with nearly half of them expecting it to happen within a year.
Only 12% believe there will be no correction at all, according to the survey of 54 global institutional investors, which included pension fund managers, chief risk officers, chief financial offers and chief investment officers.
Around a third of those who anticipate a correction expect it will be up to 30%, while nearly another third expect the fall to be between 15-20%.
The most likely reason for a slump in global equities is a run on equities sparked by fears that they are overpriced, according to the MPG survey. Other reasons include a black swan event, a geopolitical crisis and a rise in interest rates.
In line with their views on the asset class, 20% of those surveyed have already adjusted their portfolios, while 35% expressed that they plan to do so in the near future.
Of those who have adjusted their portfolios, 90% have reduced exposure to equities and 30% reduced exposure to fixed income. Forty percent have raised exposure to cash, 50% to alternatives such as hedge funds and 40% to real estate.
“Hedge funds and real estate are obvious targets but it is also interesting that a fifth of those who have already adjusted their portfolios raised exposure to asset-backed securities,” Jeremy Leach, MPG’s CEO, said in a statement.
“It shows that investors are increasingly recognising their benefits, namely attractive annual income of 5-6% over three- to five-year terms with the security of having first call on the underlying assets.”
Not the same as 2017
Similarly, a number of fund managers do not expect global equities this year to perform as well as in 2017.
For example, Thomas Poullaouec, head of multi-asset solutions for Asia-Pacific at T Rowe Price, said that the upside for global equities markets has become weaker in the long-term as global growth has peaked.
Belinda Boa, Blackrock’s Hong Kong-based head of active investments for Asia-Pacific and chief investment officer for fundamental active equities for emerging markets, said in a media briefing in December that 2017 is going to be a “very tough act to follow”.
“With the size of the returns that we’ve seen, we don’t expect we will see a similar repeat in 2018,” she said.
Nevertheless, she remains optimistic for global equities on the back of a positive macro-economic backdrop.
“A stable growth environment, a low inflation environment and a low interest rate environment have been very good for risk assets, and we expect that to continue in 2018.”
She also noted that investors are still under-invested in equities. “We know that there are a lot of assets sitting in safe haven and safe haven cash-like assets, and we wish our investors would see the opportunities in terms of being rewarded for taking risk.”
In global equities, Boa prefers international equities, such as European and emerging markets equities over US equities, which have higher valuations.
