LONDON, Nov 3 (Reuters) - The risks to financial markets posed by a rise in U.S. interest rates are at their lowest point in two years, according to a survey of investors published on Tuesday, with slowing growth in China by far the greater concern.
This suggests an increasing degree of complacency over the looming move, which may come next month and would be the Federal Reserve’s first rate rise since June 2006, Barclays said.
Only 7 percent of 651 global investors polled by the UK bank said U.S. policy “normalization” was the biggest risk over the next year, compared with 40 percent two years ago.
“Investors acknowledge that Fed liftoff could be a negative for markets in the near term, but only 10 percent think it will have long-lasting effects on risky assets,” Barclays said.
“The risk of Fed policy withdrawal is at a two-year low, suggesting complacency about the threat of higher rates.”
A fifth of those polled said that the first Fed hike will be positive for so-called “risky” assets like equities and emerging markets. Emerging market investors are the least complacent about the risks of higher Fed policy rates.
More than a third, 36 percent, said slowing Chinese growth poses the biggest risk to markets over the next 12 months.
Even after the summer rout, only 8 percent of investors said emerging market assets are cheap, with the remainder evenly split between still expensive and fairly priced.
The next single biggest risk for investors over the next 12 months was weak growth in developed economies, particularly the United States, cited by 20 percent of respondents.
At the same time, however, investors said the biggest upside surprise on growth is likely to come from the world’s two largest economic blocs - the euro zone (almost 40 percent) and the United States (30 percent).
Some 75 percent of respondents said deflation poses a bigger risk to markets over the next 12-24 months than inflation, only the second time in the last two years that deflation concerns have been so elevated.
Equities is by far the asset class most likely to offer the best return over the next three months, favoured by 50 percent of investors. (Reporting by Jamie McGeever; Editing by Mark Heinrich)