Search site Search ticker symbol

Are you looking for a stock?

Try one of these

Where have all the equity investors gone?

A
A
 

After battling through the near financial collapse in 2008-09 and the ongoing European debt crisis, many investors are now steering clear of equity markets altogether.

And many analysts and commentators say that's not likely to change anytime soon.

"Most individuals I speak to are very underweight the market, with a lot of people sitting in pure cash," Matt McCall, president at Penn Financial Group, tells BNN. "What this shows is that a lot of people are still sitting on their hands waiting for the headlines to say 'It's time to get in stocks and the bull market is here,’ but once that happens, unfortunately it's too late.”

The numbers support this view. Over the past four years, trading volumes have steadily declined and are now sitting at about half of what they were in the middle of the financial crisis, according to Credit Suisse strategists.

They say that "real money" trading, which strips out computer-driven high-frequency trading and exchange-traded funds (ETFs), is currently at decade lows.

And after surveying trading desks, they say trading volumes will remain low for years to come.

"An overwhelming 83 percent [of those surveyed] said it would take 2-5 years (or possibly more) for volumes to recover. A simple weighted measure of these pessimists puts the recovery 3-and-one-quarter years away -- very close to 2016!" the strategists said in their report. "Almost half the responses said macro risk needs to be resolved before they see trading activity pick up."

It's not the first time that the "cult of equity" has been questioned in recent months. In May, Citigroup called the end of a 50-year bull run in equities.

"We would love to see the cult of equity make a re-appearance soon, but are not counting on it. The 1990s represented the peak of a 50-year investor shift away from bonds to equities," Robert Buckland and other Citigroup strategists said at the time. "At just 12-years old, the shift back the other way still looks immature."

The report highlighted a shift by pension funds from equities to bonds as the clearest example that a sea change had occurred in financial markets.

Retail investors had also soured on equity markets, according to the report. Money flowing into U.S. mutual funds peaked in 2006 at $309 billion US. Investors have -- since the 2009 recovery -- moved their money into bond mutual funds.

More recently, Bill Gross, the influential co-chief investment officer at the world's largest bond investor PIMCO, also said he believed the cult of equity was dying.

"Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of 'stocks for the long run' or any run have mellowed as well," he said in a widely-read note. "Several generations were weaned and in fact grew wealthier believing that pieces of paper representing 'shares' of future profits were something more than a conditional IOU that came with risk."

Gross said the 6.6-percent inflation adjusted returns on equities that have held for the last century "belied a commonsensical flaw" that resembled a "Ponzi scheme."

"If wealth or real GDP was only being created at an annual rate of 3.5 percent over the same period of time, then somehow stockholders must be skimming 3 percent off the top each and every year," he wrote. "If an economy’s GDP could only provide 3.5 percent more goods and services per year, then how could one segment (stockholders) so consistently profit at the expense of the others (lenders, labourers and government)?"

CTV.ca CTV Two CTV News CTV News Channel BNN - Business News Network CP24