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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Our latest quarterly snapshot of sentiment among Wellington’s investors suggests a relatively bearish tone among the 100 or so survey participants, driven by concerns about further inflation surprises, particularly in Europe, as well as the potential for a more severe economic downturn. Specifically, given still surging eurozone inflation, we asked participants about their expectations for the region’s inflation rate by the end of 2023. While our respondents anticipate a significant moderation from current inflation levels in the eurozone, nearly three-quarters forecast inflation of more than 3.5% (Figure 1), above the current Bloomberg consensus of 3.4%. This stickier inflation outlook also led our participants to take an above-consensus view on the level of German 10-year bond yields in 12 months’ time.
In light of the recent events in the UK, we also asked participants to name the region, country, sector or industry group that they expect to be the “problem child” of 2023. Unsurprisingly perhaps, given the above-consensus view on European inflation and yields but also the vulnerability of the region to Russia’s aggression, 22% of our respondents view Europe as the top “problem child”. However, a sizeable number of participants also worry about Japan and China/Taiwan, with both coming a close second at 19%. From a sector perspective, housing and technology were rated the top two “problem” areas and a large proportion of respondents (64%) expect US house prices to decline by 5% or more in 2023.
Wellington’s recurring macro survey originated from a conversation three of our macro thinkers had over six years ago about Philip Tetlock and Dan Gardner’s book Superforecasting. Tetlock and Gardner argue that forecasting is a skill that can be improved, and we thought their theory could work well in practice at Wellington, given the firm’s collaborative culture. The hope was to sharpen our collective and individual forecasting skills, enhance our internal investment dialogue, reveal where our views differ from the market consensus and identify how they change over time. The resulting internal survey gathers the anonymous responses of macro-minded investors across all disciplines, asset classes and office locations. The precise formulation of the questions is important. Wherever possible, our questions aim to be precise, time-bound, measurable, probabilistic and rollable from one quarter to the next so as to give us a richer data set over time. We think the results can pinpoint where the firm’s views differ from the consensus and can also reveal important shifts in our collective thinking.
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