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Public investment funds predict better equity earnings over next year -survey By Reuters

© Reuters. FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo

LONDON (Reuters) – Pension and sovereign wealth funds forecast improved earnings for listed companies over the next year, but interest rate rises pose the greatest risk to financial market stability, a survey published on Friday showed.

Global shares have pushed to record highs as economic activity begins to scale up after the COVID-19 pandemic that ravaged equity markets and the global economy last year.

A recent Reuters poll of analysts found that most expected the rise in stocks to continue this year. Consistent with that view, a total of 68% of respondents to the Sovereign Wealth Fund Institute (SWFI) second quarter survey predicted a rise in earnings by at least 10% in the next year.

But the greatest threat to financial market stability was a rise in interest rates, according to survey respondents, who included investment professionals in the pension and sovereign wealth fund industry.

A total of 32% of respondents worried about interest rates, more than other concerns such as geopolitics or credit default risk.

Interest rate rises can be a potential drag on equity earnings and stock prices by raising costs for businesses, while weighing on consumer demand.

The U.S. consumer price index posted on Thursday its biggest year-on-year gain since August 2008.

But the U.S. Federal Reserve has repeatedly said that it expects any rise in inflation to be temporary and that it is too soon to be discussing reducing its monetary stimulus.

Central bank policy will likely be the biggest driver of listed equities in the next six months, followed by the COVID-19 pandemic, the SWFI survey found.

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