The CFA Institute today released the results of its annual Global Market Sentiment Survey, highlighting concerns ranging from the eurozone crisis to advisor ethics. The survey was sent to 115,796 members in 60 countries, with 6% participating.
Key takeaways from the survey include:
- Ethical cultures and behaviour within financial firms must change.
- Mis-selling of financial products is a serious concern.
- The global economy is expected to improve.
- Optimism for local economies, except in Europe.
- Outlook is bleak for the European sovereign debt crisis.
- Equities expected to outperform all asset classes.
- Employment hopes for investment professionals remain stable.
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Advisor ethics & market integrity
Lack of ethical culture within financial firms contributes most to the current lack of trust in the financial services industry, according to 56% of respondents. Sixteen percent blame market disruptions like failed IPOs and flash crashes, while another 16% cite poor government regulation and enforcement. Only 2% think there is no lack of trust in the finance industry.
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“This is the top takeaway from the survey,” says Matt Orsagh, director of Capital Markets Policy at the CFA Institute. “Changing cultures is a long-term process. It took a long time to lose this much trust, not only from the public but from our own membership, and it will take a long time and a lot of leadership to change it. When we ask this question next year I don’t expect it to change that much. If it does move it will move very slowly, but hopefully five or ten years from now it will be below 50% or 40%.”
What is most needed to help improve investor trust and market integrity in 2013? Twenty-four percent say improved enforcement of existing laws and regulations; 21% look to improved corporate governance practices; 19% suggest improved regulation and oversight of global systemic risk; 16% say improved market trading rules on transparency and frequency of trades; and another 16% suggest improved transparency of financial reporting and other corporate disclosures.
On the firm level, improving the culture established and encouraged by top management and executives is most needed to re-establish investor trust, according to 40% of respondents. Another 26% point to increased adherence to ethical codes and standards.
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A stunning 30% of Canadian respondents answered “mis-selling by financial advisors” when asked to identify the “most serious ethical issue” facing the financial services industry today. Market fraud is the biggest concern for 16% of Canadian CFAs. The global figures are roughly the same, at 29% and 19%, respectively.
Derivatives are the number one ethical issue facing global markets next year, say 23% of respondents. Another 21% cite financial reporting, while 19% cite market fraud.
Economic & investment outlook
Forty-five percent of respondents expect their local economy to improve in 2013, with only 16% expecting it to contract. Thirty-nine percent expect it to stay roughly the same.
Forty-one percent expect the global economy to expand, 38% think it will stay roughly the same, and 21% expect it to contract.
Fifty percent of respondents see equities bringing in the best returns in 2013, up roughly 10% from last year. Twenty-two percent pin their best hopes on precious metals, 16% on commodities, 8% on bonds, and 4% on cash.
Asked which equity markets would provide the best opportunities in the coming year, 32% chose the United States, 17% picked China, and 10% looked to Brazil. Canada was the top choice for 4% of respondents.
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Respondents were not very optimistic about the eurozone debt crisis: 42% think it will stay about the same, 35% expect it to get even worse, and 23% think it will ease.
Fifty-one percent of Canadians see weak economic conditions as the greatest threat to the Canadian market in 2013, while 14% think the European sovereign debt crisis will be our biggest problem.
Globally, respondents see weak economic conditions as the main threat to local markets, and 18% fear political instability as a major disruptive force. Twelve percent expect excess regulation to cause their worst headaches in 2013.
Thirty-seven percent of respondents think the European sovereign debt crisis will be the biggest risk to global capital markets next year.
Sixty-seven percent think the integrity of global capital markets will stay about the same next year. Twenty-six percent think it will improve, while only 7% think it will take a turn for the worse.