Investors optimistic about earnings, but not about European economy


A large majority of analysts and investors is optimistic about earnings announcements to be released in the next few weeks. Optimism about the European economy is, however, clearly lagging behind optimism for other regions. Discomfort about the European sovereign debt crisis lies at the heart of this, according to recent research amongst some 400 analysts and institutional investors worldwide performed by Erasmus University in co-operation with PwC. The research is initiated by Dr. Erik Roelofsen, researcher at Erasmus University and director at PwC, and Professor Gerard Mertens.

Key Findings

     

  • 74 per cent of analysts and investors are optimistic about 2010 Q4 earnings announcements
  • Only half of analysts and investors believe that 2011 will be a year of economic recovery
  • Most optimistic about: mining, agriculture, chemicals, technology, energy and utilities
  • Least optimistic about: construction, consumer electronics, telecoms, paper & forest, and banks
  • 10 per cent of analysts and investors expect the Euro to collapse in 2011
  • 81 per cent expect to see more M&A activity, 70 per cent more IPOs, 68 per cent expect higher equity allocations
  • Optimism about European economy lacks behind optimism for other regions.
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Optimism

 

Erik Roelofsen

About 74 per cent of analysts and investors are optimistic about 2010 earnings announcements to be released in the next few weeks. Only 9 per cent are pessimistic about 2010 earnings announcements. The optimism is highest for companies in mining, agriculture, chemicals, technology, and energy and utilities, driven by a persistently strong demand for commodities from countries such as China and India and the increased demand for energy due to the global increase in industrial production. Analysts and investors are least optimistic about construction, consumer electronics, telecom, paper and forest products, and banks. Dr. Erik Roelofsen said: “Compared to last quarter, we observe a significant increase in optimism for chemicals and mining, as well as for hotels and restaurants. Optimism for the consumer electronics sector has slipped; analysts’ and investors’ expectations for this sector have become significantly more gloomy. Respondents are also less positive than three months ago about telecom and pharmaceuticals.”

 
Gerard Mertens
Optimism about the global economy is on the rise, but optimism for the European economy is lagging behind. Many analysts indicate that they have become less optimistic about Europe; overall optimism about the European economy did not change. Optimism about the North American economy, however, showed a large increase. According to Gerard Mertens, Professor of Financial Analysis, these results show that at the end of 2010, analysts and investors were increasingly concerned about budget deficits in European Union countries and the fall-out for monetary stability and economic growth in the Eurozone. The negative sentiment has been fed by recent troubles in Ireland, Portugal and Spain. Approximately 42 per cent of analysts and investors indicated they expect the debt crisis to continue in 2011.

Despite the increase in optimism, analysts remain reserved about the timing of economic recovery. Only half of the investors and analysts expect global economic recovery in 2011. Analysts are less grim about the future of the Euro, with only one in ten analysts expecting the Euro to collapse in 2011.

Market activity

A majority of participants in the survey expect more activity in Mergers and Acquisitions (M&A) markets and capital markets in 2011. About 81 per cent expect more acquisitions, 70 per cent expect more Initial Public Offerings (IPOs), and 68 per cent expect higher equity allocations. “By now, investors are convinced that firms have regained the confidence to become more active in M&A markets, or to aim for an IPO”, said Dr. Roelofsen. “Investors are now attracted towards equity, given the meagre returns of other investments.”

About the survey

The “RSM Global Analyst and Investor Survey” is performed quarterly among sell-side and buy-side analysts and portfolio managers worldwide. Its purpose is to collect opinions and expectations of global economic developments, relevant economic indicators, and topical issues that might affect the current and future state of the economy. The present edition of the survey was conducted between 29 December 2010 and 4 January 2011. More than 400 analysts and investors participated in the survey.

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