Investment professionals in Asia Pacific (APAC) are more optimistic about economic prospects for the coming year although they tend to be more cautious compared to their peers elsewhere, according to a survey by CFA Institute, the global association of investment professionals.
The CFA Institute 2014 Global Market Sentiment Survey (GMSS) shows that more than half (56 percent) of investment professionals in the region surveyed this year expect the global economy will expand, representing a significant shift in sentiment. Last year, only 32 percent of respondents had the same view. More than two-thirds (68 percent) in APAC are worried about asset bubble risks in their local markets, with 52 percent seeing it coming from the real-estate sector.
Overall, respondents see little change in the level of integrity in the global capital markets, though APAC respondents are more optimistic about this improving than their counterparts in the Americas as well as those in Europe, the Middle East and Africa “EMEA” (32 percent in APAC compared with 23 percent in the Americas and 27 percent in EMEA).
“The number of our members who expect the global economy to expand has nearly doubled in the last two years. However this is no time for those in finance to become complacent,” says John Rogers, CFA, president and CEO of CFA Institute. “The survey reflects that investor trust has been eroded and in order for the financial industry to be an extraordinary force for good, we must embrace ethical behavior at all levels. As markets rebound, we are working to ensure that attention does not shift away from meaningful reforms that might restore investor trust and strengthen the financial system’s ability to resist shocks in the future.”
Fifty-two percent of members in APAC expect their local markets to grow in 2014, up slightly from 46 percent in last year’s survey. Respondents in Japan are the most confident within the region and among the top two globally at 73 percent. Hong Kong respondents (37 percent) are the most cautious.
Sixty-eight percent of APAC members this year identified equities as the asset class most likely to perform best, up from 41 percent in 2013.
APAC members rate the United States (25 percent), China (20 percent), and Japan (10 percent) as the equity markets that will provide the best investment opportunity in 2014. Globally, respondents also rate these as the top three markets in that order.
Weak economic conditions (28 percent), political instability (24 percent) and growth rates (18 percent) in emerging economies are identified as the biggest risks to local markets. Many more APAC members are concerned about growth rates in emerging economies, than members in other regions (5 percent in the Americas, 6 percent in EMEA).
Calls for improved oversight to build investor trust
Forty percent of APAC members say that the most needed action to improve investor trust and global market integrity is improved regulation and oversight of systemic risk, more than in EMEA (33 percent) and the Americas (24 percent).
Globally, members cite improved enforcement of existing laws and regulations in their home markets (30 percent) as the action most needed to help improve investor trust and market integrity. But in APAC opinions are split. Those in China (34 percent), India (32 percent) and Australia (30 percent) share the same view.
Respondents in Japan (48 percent), Hong Kong (31 per cent) and Singapore (23 percent) are more likely to point to the need for stronger corporate governance standards. Those in China (27 percent) are also more concerned about improving transparency of financial reporting and other corporate disclosures than any other territory.
Compared to the global average, more APAC members identify market fraud (32 percent) and the integrity of financial reporting (20 percent) as the principal ethical issues facing local markets. China members (55 percent) are by far the most concerned about market fraud. In Australia however mis-selling dominates as the largest concern (48 percent).
Biggest ethical issue facing global markets is the disclosure and use of financial derivatives, with APAC members (27 percent) rating this as more of a problem than their peers (18 percent in the Americas and 21 percent in EMEA).