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Property 11 of 17 Asset class forecasts 9 of 17

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Where does this enthusiasm for equities come from? In the short term, it could derive from investors seeking to gain from a quick rise in equities in the pull out of recession (when this survey was taken in February - March 2010, the equities markets were moving upwards). Yet the increased enthusiasm for equities on a five-year horizon suggests a different and more profound attraction.

On a country-by-country basis, the variations suggest that recent history does play a part in such judgements. Respondents in Spain and Ireland are more gloomy than average about equities on a one-year horizon - although keen on them on a five-year horizon.

In contrast, respondents in the emerging markets are highly enthusiastic about equities on one-year and five-year horizons - as are respondents in some economies with very direct exposure to the emerging markets, such as Australia. But this is not just an emerging market/developed economy split: Swiss respondents are enthusiastic about equities. And, within regions, markedly different views about equities can co-exist from country to country.

Michael Dicks, Chief Economist at Barclays, has attempted to gauge numerical expectations from survey respondents' qualitative answers. Again, the calculations use long-runs of past data to measure historical variation in asset class returns, thus permitting a calibration to be made from terms such as "well" or "very well". The expected returns are then compared with those from a recent JP Morgan survey of European institutional investors' global views (its European Equity Survey).

This comparison suggests that wealth investors are indeed more pessimistic than their institutional peers - which is consistent with their view of economic prospects. They have markedly lower average forecasts for the rise in equity prices over both a one-year and five-year horizon. Looking one year out, survey respondents (on the basis of these calculations) expect a 2.4% increase in equities prices, while institutional investors expect an 8.3% rise. On a five-year horizon, the expected average annual increases of the two groups are rather closer: 5.9% for survey respondents and 8.4% for institutional investors.

As in the global economy forecasts discussed earlier, it is the uneven distribution of the responses that is interesting. Survey respondents tend to be much more worried by the downside risks to equities than their institutional peers - perhaps mirroring their uncertainty about the global economy in general, on both a short and long horizon (see charts 16 and 17). Survey respondents assess the probability of equities experiencing a negative rate of return at around one in four, whereas institutional investors put it at less than 5%. As with the macro picture, Barclays shares the view that institutional investors may be overly optimistic.