In a recent global survey of investment managers, professional services firm Tower Watson found that most are maintaining a negative view of the world’s growth prospects for 2013. Furthermore, it projected that the lacklustre performance of medium-term government bond yields will reflect investment managers' bearish view of traditional Western markets such the US, UK and the eurozone.

The survey found that global economic imbalances, sovereign debt defaults in the eurozone and the weak fiscal positions of the US, UK and Japan are the most pertinent concerns for investment managers, and that over the next five years, markets could become bearish as a consequence.

In its '2013 Global Survey of Investment and Economic Expectations', Towers Watson found that although investment managers have become more optimistic about the prospects for equity returns – as institutional investors are expected to modestly increase risk portfolios in 2013 – a significant number of managers still expect a sovereign debt default in the eurozone.

“Eurozone countries face highly political, long-term structural reforms, as well as fiscal austerity, which are proving difficult to implement,” said Naomi Denning, managing director of investment services for Asia-Pacific at Towers Watson. “Politics has become increasingly enmeshed in the financial world since the global economic crisis began and investment managers have identified this as the top issue.”

According to the survey, 83% of investment managers hold bullish views on emerging market equities, while 78% and 57% of managers hold bullish expectations for the performance of public equities and real estate, respectively.

Nominal government bonds were expected to perform less well, with 80% of managers remaining bearish about their performance in 2013. Investment-grade bonds divided opinion, with 47% of managers remaining bearish on their performance in the year. The survey found that most managers are relatively pessimistic with regards to the GDP growth of Western economies in 2013. Most expect the eurozone’s GDP to remain relatively flat, while the UK is expected to grow by 1% and the US by 2%.

“Volatile markets and heightened risk awareness continue to make asset allocation very challenging,” said Ms Denning. “So many funds are buying fewer bonds than before, and those which are considering adding risk to their investment portfolios are most often diversifying into alternative assets rather than simply buying equities.”