CFAs upbeat on global outlook

Investment professionals worldwide report greater optimism over economic prospects for the coming year, but do not express confidence that the integrity of capital markets is improving, according to the CFA Institute’s 2014 Global Market Sentiment Survey.

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Sixty-three percent of CFA Institute survey respondents think the global economy will expand in 2014, representing a significant shift in opinion over the previous two years. However, more than half (54%) point to a lack of ethical culture within financial firms as the factor that has contributed the most to the current lack of industry trust.

“The number of 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,” said John Rogers, 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.”

Investment professionals increasingly confident global and local economies will grow in 2014

• Global economy expected to improve. 63% of all respondents expect the global economy to expand, up from 40% from last year’s survey. In Canada, 62% said they expect the global economy to expand.

Read: Global growth should surprise to the upside in 2014

• Less optimism about Canada’s local market performance: In Canada, only 47% of CFA Institute members surveyed say they expect the local economy to expand.
• Canadians are split on the likelihood of a local financial bubble: While 43% of respondents do not anticipate a financial bubble, the same amount (43%) reported they do anticipate a financial bubble in 2014.
• Marked increase in optimism for equities: 71% of all members this year identified equities as the asset class most likely to perform best, a big jump up from 50% in 2013. In Canada 69% of respondents identified equities as the likely best performing asset class for 2014.
• United States and China continue to be considered the best investment opportunity, Brazil drops off list: Members rate the United States (26%), China (10%), and Japan and Germany (tied at 6%) as the equity markets that will provide the best investment opportunity in 2014. In 2013 members similarly indicated that the U.S. (32%) and China (17%) would provide the best investment opportunities, with Brazil (10%) a strong third choice.

Weak economic conditions and the end of quantitative easing bring uncertainty to local markets

• Weak economic conditions seen as a risk to Canada: At 43%, the biggest risk to the local market in Canada comes overwhelmingly from weak economic conditions, followed by excess regulation (9%) and political instability at 5%.

Read: QE is useless, says former Fed official

• Concerns for the end of quantitative easing: 68% of members worldwide say they are concerned that the prospect of central banks ending quantitative easing will have a negative impact on their local market in 2014.

Members call for global oversight and local enforcement

• Calls for improved oversight to build investor trust: More than one quarter (29%) of global members say that the most needed action to improve investor trust and market integrity is improved regulation and oversight of systemic risk. This sentiment is stronger in Asia Pacific (40%) than in EMEA (33%) and the Americas (24%).

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• Need for improved enforcement and governance cited in Canada: In terms of regulatory or industry actions most needed in Canada to help improve investor trust and market integrity, 33% of Canadians said improved enforcement of existing laws and regulations followed by improved corporate governance practices (22%).

Lack of ethical culture in financial firms eroding investor trust

• State of integrity in global capital markets not expected to improve: As in prior years, over half of members (54%) point to a lack of ethical cultures within financial firms as the factor that has contributed the most to the current lack of industry trust. This sentiment was higher in EMEA countries (61%) than in Asia Pacific (56%) and the Americas (51%).
• Mis-selling seen as a problem in Canada: The most pressing ethical issue cited by Canadian respondents is mis-selling by financial advisors (34%). Only 25% of global respondents saw mis-selling as a major problem. In Canada the second most cited ethical issue facing the local market was market fraud, at 17%. This was lower than the 24% of global members who cited market fraud as the most pressing ethical issue.

The annual survey measured the opinion of 6,561 CFA charterholders and members.

Read: Ethical rot in financial services industry, says survey