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Investment professionals expect “meagre gains” in Canadian, international indices for 2015


December 16, 2014
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NEW YORK, N.Y.– Investment professionals worldwide expect the global economy to grow an average of just 2 per cent in 2015, according to the CFA Institute 2015 Global Market Sentiment Survey. Survey respondents—who include portfolio managers, research analysts, and C-suite executives—cite political risks, including secessionist and nationalistic movements, as the most underestimated risk that could negatively affect markets in the next five years.

The annual CFA Institute survey measured the opinion of 5,259 CFA charterholders and members, representing the views of professional investors around the world. To review the complete report and survey results, click here.

Survey respondents expect only modest gains in equity market indices, with the TSX predicted to climb 1.5 per cent, S&P 500 predicted to climb 4.8 per cent, the EuroStoxx 50 to increase 1.9 per cent, and a 1.6 per cent rise for the Nikkei 225. Members also expressed concern about ethical issues, including market fraud and the need for improved regulation and oversight of global systemic risk to improve investor trust and market integrity.

“The survey results show low expectations from our members for global economic growth and market performance over the next year,” said Kurt Schacht, CFA, managing director, CFA Institute. “Our members are wary of sluggish developed market economic growth and the effects of political disruptions. At the same time, market fraud, like insider trading and the integrity of financial reporting, remains a cause for concern. Each year we see through this survey that our members are particularly attuned to the factors that shape investor perceptions of trust in the integrity of the capital markets and the steps that need to be taken to improve that trust.”

Investment professionals cautious on the growth of global economy in 2015

Caution around prospects for global economy, local markets also expected to slow. On average CFA Institute members expect the global economy to grow 2.0 per cent in 2015, while respondents in Canada expect their local GDP to grow by just 1.7 per cent. On the higher end, survey respondents expect India to see robust 5.8 per cent growth in the economy there, and members in China anticipate 6.2 per cent growth. Members in Switzerland, Japan,France, and Brazil all expect growth of less than 1 per cent in their home markets.

Canadian respondents see external economic performance as the biggest risk to local market performance. Close to half of Canadian members (45 per cent) cite weak external economies as the largest risk to Canada’sperformance in 2015. Of those, 23 per cent cited weak emerging market economies as the biggest risk, while 22 per cent identified weak developed economies as the biggest risk.

Canadians cite political risks, developed market performance and demographic concerns as short- and mid-term threats to global market. 23 per cent of Canadian members cited political instability as the biggest threat to global capital markets in 2015, while the same number cited the poor performance of developed markets as a leading risk. When asked about the most underestimated risk that could affect global markets over the next five years, 28 per cent of Canadian respondents cited political risk, including secessionist and nationalist movements, and 26 per cent identified the impact from the demographic trend of ageing populations.

United States and China still considered the best investment opportunities. The United States and China remain the top picks for equity market performance in the coming year, as was the case in the 2014 survey, followed this year by India and Russia.

Most serious issues facing global and local markets cause continued concern. Global respondents view market fraud, such as insider trading (25 per cent), and the integrity of financial reporting (24 per cent), as the most serious ethical issues facing global markets in 2015. Concerns about mis-selling at the local market level have gradually decreased year on year to 21 per cent in 2015, though it remains a top concern in many markets.

Canadians see misaligned incentives as leading concern. In Canada close to a third of respondents (32 per cent) identified misaligned incentives of investment management services as the biggest local threat, followed by 25 five per cent who cited mis-selling by financial advisors as a top concern.

Calls for improved oversight to build investor trust. Globally, 28 per cent of respondents indicated that improved regulation and oversight of global systemic risk is the action most needed to help improve investor trust and market integrity. In Canada, 31 percent of respondents see improved enforcement of existing laws and regulations as needed in the coming year to improve investor trust.

Need for greater enforcement of existing laws in local markets. Globally members indicated that improved enforcement of existing laws and regulations (26 per cent), closely followed by improved corporate governance practices (24 per cent), are the regulatory or industry actions most needed to improve investor trust in their home markets in 2015.

Unethical culture to blame for lack of trust in the financial industry. Over half of global members (63 per cent) point to a lack of ethical culture within financial firms as the factor that has contributed the most to the current lack of trust in the financial industry. A sentiment echoed by Canadian respondents (31 percent). More members in Europe, theMiddle East, and Africa (67 per cent) and the Asia-Pacific region (65 per cent), as compared to the Americas (59 per cent), chose this response.

Firm level action is necessary to improve investor trust. Better alignment of compensation with investor objectives (31 per cent), a zero-tolerance policy by top management for ethical breaches (27 per cent), and increased adherence to ethical codes and standards (21 per cent) are the most needed firm-level actions in the coming year to improve investor trust and confidence, according the global respondents.

“Concerns about market integrity remain at the forefront of our members’ minds,” said Schacht. “Improved oversight of global systemic risk is the most important action needed over the coming year to build trust and market integrity. This finding suggests that in the six years since the global financial crisis, the degree of cross-border cooperation between regulators with regard to detecting and mitigating systemic risk does not yet appear to be sufficient.”

The annual CFA Institute Global Market Sentiment Survey seeks input from CFA Institute members to gather data on key market and economic issues in the coming year. The survey was conducted online from October 14 to October 28.