Investment professionals worldwide are more optimistic than last year about global economic growth heading into the new year, according to the CFA Institute 2013 Global Market Sentiment Survey.
Most of those surveyed (40 per cent) expect the global economy will expand in 2013, a six point increase from last year’s poll. However, CFA Institute members believe there is much work to be done to restore financial market integrity. Citing an overwhelming lack of trust in finance, members think the primary fix is to encourage a culture of ethics and integrity inside financial firms. The annual survey measured the opinion of 6,783 CFA charterholders and members worldwide between 30 October and 13 November.
“There is mounting optimism around global economic growth from both investors and the financial industry, despite ongoing issues like the European sovereign debt crisis and significantly greater concern about mis-selling,” said Kurt Schacht, CFA, managing director of Standards and Financial Market Integrity at CFA Institute. “We’ve seen the industry become more vocal about the behaviour that led to the global financial crisis, and survey respondents are emphatic about the need for stronger ethical culture at financial firms. Our members are convinced that to build a more trustworthy industry, change must start with top management to develop a culture where ethical practice is just as important as investment performance.”
Economy in 2013
Survey respondents were optimistic about the global economy as well as local economies except for Europe. 40 per cent of investment professionals expect the global economy to expand, while only 20 per cent expect a contraction, down from 29 per cent one year ago. Respondents in advanced economies (45 per cent) were more optimistic than those in developing economies (35 per cent) about global growth, but the picture is reversed when it comes to expectations for their home economies.
Strongly influenced by a negative outlook for the European debt crisis, only 28 per cent of European investment professionals believe their home economies are going to expand in 2013, in stark contrast to those in developing economies (56 per cent). Most respondents (77 per cent) believe that the European sovereign debt crisis will get worse or stay the same and worldwide 37 per cent of CFA members are concerned about the threat of the European debt crisis to the global economy.
The European debt crisis is also considered to be the top risk to economic growth, followed by weak economic conditions (31 per cent).
Overall 45 per cent of investment professionals expect their home economies to grow, up from 42 per cent last year.
In terms of investment types the survey results point to equities outperforming all other asset classes. Half of respondents globally think equities will provide the highest expected total return in 2013, up from 41 per cent a year ago – when compared to bonds, cash, commodities and precious metals. Only 4 per cent expect cash to outperform, down sharply from 2012.
Geographically the United States is considered the best investment opportunity. When asked to rank the three equity markets that will provide the best investment opportunities in 2013, the United States (32 per cent), China (17 per cent) and Brazil (10 per cent) emerged as the top three markets.
Ethics in finance
The survey clearly shows that ethical cultures and behaviour within financial firms must change. More than half of CFA respondents (56 per cent) noted a lack of ethical culture within financial firms as the primary contributor to the low level of industry trust.
In particular the mis-selling of financial products, such as the pushing of unsuitable products to obtain a commission, or failure to provide advice tailored to the client’s needs are expected to be the most serious ethical issue in the coming year, according to 29 per cent of members, up significantly from 13 per cent last year.
Respondents think the most effective remedy is improved ethical culture from top management, selected by 40 per cent of members as the action that is most needed. Another 26 per cent of members identified the most needed action as increased adherence to ethical codes and standards. Overall the better enforcement of existing standards is favoured by respondents over new laws and regulations to restore market trust and confidence in 2013.
Investment professional are hopeful that employment opportunities will remain stable. About half of all members (49 per cent) see similar employment opportunities to stay similar to last year. However, only 17 per cent believe opportunities will increase and 33 per cent expect them to decrease.