See America first: Investors like U.S. best

International investors are the most bullish they've been on the U.S. and Japanese markets in more than 3-1/2 years as both countries' economies are seen as improving, according to the latest Bloomberg Global Poll. More than half of those contacted said the U.S. will be among the markets offering the best returns over the next year, a 15-point jump from the last poll in January and the highest rating for any country since the survey began asking that question in October 2009. Japan, which had been seen as a place to avoid in many of the previous polls, ranked second in the May 14 survey of investors, analysts and traders who are Bloomberg subscribers, with one in three picking it as a market to favor. “I'm upbeat on the U.S.,” said Charles Doraine, president of Doraine Wealth Management Group Inc. in Corpus Christie, Texas and a poll respondent. “Housing is coming back” and the country “can be energy independent in the not too distant future.” China experienced a reversal of fortunes in the survey as it went from investment darling to dud. More than one in four investors said its market would be among those with the worst opportunities: only the European Union did poorer. It was singled out as a market to avoid by 45 percent of those polled. Investors also soured on commodities and gold, with a majority now seeing deflation as a greater threat than inflation in the coming year. More than two in five intend to reduce their exposure to gold over the next six months, the highest percentage divesting since the question was first asked in November 2010 and close to three times more than those who plan to increase it. Stocks Best Stocks were again the asset of choice for those polled. Fifty-four percent said equities will offer the highest returns over the next year, the best reading in the nearly four-year history of the poll. Real estate came in second, the favorite of just under one in five surveyed. Forty-two percent said they plan to increase their exposure to the property market in the next six months, up from 36 percent in January and the highest reading since the survey began asking that in June 2010. The U.S. economy is in its best shape in more than 2-1/2 years, according to the poll. More than three in five respondents described it as improving, the most since the poll began asking the question in September 2010. U.S. Economy The U.S. economy will “grow at least 2.5 percent next year,” said Sangwook Lee, chief foreign currency fixed income portfolio manager at Shinhan Bank in Seoul and a poll respondent. That would be the fastest expansion of gross domestic product since 2006. GDP climbed 2.2 percent last year. Recent signs about the U.S. outlook have been mixed. Industrial production declined in April by the most in eight months, according to the Federal Reserve, while the Commerce Department reported that retail sales rebounded. Given the investor optimism about the U.S., two in five of those surveyed said that they plan to increase their exposure to the U.S. dollar over the next six months. That's up from one in five who said that in January and is the highest percentage since the question was first asked in September, 2011. Only 9 percent said they were reducing exposure. The Dollar Index (DXY), which measures the currency's value against a basket of six major currencies, climbed yesterday to its highest since July before paring the gain. It has risen about 5 percent this year. The U.S. currency should benefit in the months ahead as the Federal Reserve looks to scale back its stimulus while other central banks add to theirs, Ryan Longhenry, a poll participant and a trader for CJS Trading Corp. in Chicago, said in an e-mail. Headed Higher U.S. stocks also are headed higher, according to the survey. More than half of investors expect the Standard & Poor's 500 Index to rise over the next six months. While that is down from 62 percent in January, it is still the second biggest percentage in almost 1-1/2 years. “The U.S. equity market has been setting new highs recently, but I do not see why this cannot continue,” Peter Fitzgerald, co-head of the multi-manager team for Aviva Investors in London, said in an e-mail. “The U.S. economy is growing at a reasonable rate, monetary policy is extremely accommodative, the housing market continues to recover, businesses have reasonable amounts of cash and have underinvested for years,” added Fitzgerald, who took part in the poll and whose team is responsible for more than 3 billion pounds ($4.57 billion) of client portfolios. Equity Bulls The S&P stock gauge has risen more than 16 percent this year. It increased 0.5 percent yesterday to 1,658.78 at 4 p.m. in New York, reaching an all-time high for the ninth time in 10 days. Global investors are even more bullish on Japanese equities. More than three in five see the Nikkei 225 Stock Average rising over the next six months. Only 16 percent expect it to fall. The stock gauge has climbed about 44 percent this year, spurred by quantitative easing from the Bank of Japan. The average fell 0.8 percent as of 11:12 a.m. local time after closing above 15,000 for the first time since 2007 yesterday. “As long as the BOJ maintains the current QE program until 2015, as it promised to do so, major corporates and banks' equities will outperform the other markets,” Lee said in an e-mail. Japan's economy expanded more than analysts estimated in the first quarter on gains in consumer spending and exports, with gross domestic product rising an annualized 3.5 percent, the government said today. Japan Improving Close to half of investors described the Japanese economy as improving. Only 14 percent said it is deteriorating. As investors have grown more bullish on Japan, they've gotten more bearish on China. More than one in four singled out China as among the markets that will offer the worst opportunities over the next year, the most that have said that since January 2010. The world's second biggest economy expanded 7.7 percent in the first quarter from a year earlier, down from 7.9 percent in the fourth, according to the National Bureau of Statistics in Beijing. About three in 10 investors think slowing Chinese growth poses the biggest risk to the global economy in 2013. That was second only to Europe's debt crisis: 36 percent singled it out as the largest danger. Debt Defaults Two-thirds of those surveyed consider a debt default by Cyprus to be likely. Thirty five percent think the same about Slovenia, another member of the euro area. Investors are sanguine about threats to the global economy from hostilities in the Middle East. Only six percent saw a high risk that the civil war in Syria would escalate so much that it would affect oil prices. Two-thirds though said U.S. intervention in the conflict would damage, rather than improve, regional stability. As Chinese growth has slowed and its demand for raw materials ebbed, investors have cooled on commodities. One in five said commodities were the asset to be most shunned over the next year, the worst showing in the nearly four-year history of the poll. Fifty six percent of investors believe deflation will be a greater threat to the global economy than inflation over the next year, according to the poll. That's a reversal from two years ago: in January 2011, three-quarters thought inflation was the bigger danger. “Despite all the QE and lower interest rates, inflation simply has not been a problem,” Fitzgerald said. “Deflation poses a much greater risk with current debt levels.” The poll of 906 Bloomberg subscribers was conducted by Selzer & Co., a Des Moines, Iowa-based firm. It has a margin of error of plus or minus 3.3 percentage points. --Bloomberg News--