Investment professionals worldwide expect the global economy to grow an average of just 2% 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.
Respondents expect only modest gains in equity market indices, with the TSX predicted to climb 1.5%, S&P 500 predicted to climb 4.8%, the EuroStoxx 50 to increase 1.9%, and a 1.6% 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.
Global economy in 2015
- Caution around prospects for global economy, local markets also expected to slow. On average, CFA members expect the global economy to grow 2.0% in 2015, while respondents in Canada expect their local GDP to grow by just 1.7%. On the higher end, respondents expect India to see robust 5.8% growth in the economy there, and members in China anticipate 6.2% growth. Members in Switzerland, Japan, France, and Brazil all expect growth of less than 1% 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%) cite weak external economies as the largest risk to Canada’s performance in 2015. Of those, 23% cited weak emerging market economies as the biggest risk, while 22% 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% 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% of Canadian respondents cited political risk, including secessionist and nationalist movements, and 26% 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.
Market fraud and integrity of financial reporting are the most serious concerns for global market integrity
- Most serious issues facing global and local markets cause continued concern. Global respondents view market fraud, such as insider trading (25%), and the integrity of financial reporting (24%), 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% 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%) identified misaligned incentives of investment management services as the biggest local threat, followed by 25 five% who cited mis-selling by financial advisors as a top concern.
Members call for improved global oversight and local enforcement to improve market integrity
- Calls for improved oversight. Globally, 28% 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% 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%), closely followed by improved corporate governance practices (24%), are the regulatory or industry actions most needed to improve investor trust in their home markets in 2015.
Ethical culture in financial firms continues to be the biggest area of opportunity to improve trust in the industry.
- Unethical culture to blame for lack of trust in the financial industry.Over half of global members (63%) 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%). More members in Europe, the Middle East, and Africa (67%) and the Asia-Pacific region (65%), as compared to the Americas (59%), chose this response.
- Firm level action is necessary to improve investor trust. Better alignment of compensation with investor objectives (31%), a zero-tolerance policy by top management for ethical breaches (27%), and increased adherence to ethical codes and standards (21%) are the most needed firm-level actions in the coming year to improve investor trust and confidence, according the global respondents.