Money Managers See Economic Gains Ahead

Posted by: Joe Weber on July 16

uparrow.jpg Growing numbers of the experts who invest money for wealthy customers at Northern Trust, one of the nation’s toniest high-end banks, expect growth in corporate earnings and global production rates, according to a new survey by the bank.

“There is more of an expectation that there is a bottoming of economic growth, a slowing of deceleration,” says Christopher E. Vella, global director research for the Chicago-based bank. “They expect a pickup in the third and fourth quarter of this year.”

Northern Trust Global Advisors, an investment arm of the big bank, found a dramatic turnaround in sentiment among some 70 independent money managers whom it uses to invest money for the bank’s well-heeled clients. Some 39% of those queried in the latest quarterly survey suggested that corporate earnings will rise in the next three months. This is a sharp contrast with the 90% questioned in the first quarter who expected declines in corporate results in the April to June period and the 95% last winter who expected declines in the January to March quarter. Only 1.3% in the first quarter of this year expected increases and none did in the fourth quarter of last year.

“A lot of our managers have pointed to some early signs of growth in Asia. There are some signs that companies have been just eating away at inventory and the shift they’ll have to make at some point will be away from destocking inventory and toward starting to restock inventory again,” says Vella. “They expect that to take place in the second half of this year.”

A healthy majority, 65%, of the money managers expect global GDP to accelerate in the coming six months. That, too, is a dramatic turnaround from expectations in the opening part of this year, when just 12% were optimistic about such gains.

The money managers appear to be putting their money where their mouths are, too. Some 19% of them now are at or below the minimum cash thresholds for their funds – meaning they are keeping only modest amounts in cash, instead of putting it into stock or other investments. This is up from 4% in the prior quarter. “That’s a sign that the managers are putting more money to work,” says Vella.

The Northern Trust study, released July 14, echoes a sense among traders that it’s time to have faith in the markets once again. Charles Schwab on July 7 released survey data of some 260 active individual investors, with some 53% saying they expected clear signs of recovery in the next 12 months. Some 63% in the Schwab survey said they planned to boost their trading activity in the next six months, up from 49% in a February 2009 survey.

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BusinessWeek’s Joe Weber, Patricia O'Connell, Michelle Conlin, Frederik Balfour, Peter Coy, Greg Spielberg and Roger Crockett examine The Case for Optimism by looking past the financial turmoil and economic unrest gripping the globe to focus on the promising future that lies on the other side of this storm. We’ll chronicle the forward thinkers investing in R&D, launching promising new products, entering new markets, or implementing management and leadership.

See why BusinessWeek Editor-In-Chief Stephen J. Adler is optimistic about the economy amid the sharpest downturn since the Great Depression.

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