Five years after the onset of the 2008-2009 market downturn, investors continue to show signs of risk aversion, despite an optimistic outlook for the future, according to the 2014 Franklin Templeton Global Investor Sentiment Survey, participated by 11,113 investors in 22 countries across Africa, Asia Pacific, the Americas and Europe.
Globally, 52% of investors are planning to become more conservative with their strategies this year, taking on less risk with the potential of earning lower returns. However, this risk aversion is less pronounced than last year when the annual survey showed that 57% of investors planned to be more conservative with their investments.
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This trend towards conservatism, with 58% of Mexican investors adopting a more conservative approach, runs counter to the fact that most investors expect better stock market performance and higher returns from their investments this year, as well as the fact that four out of five investors feel optimistic about reaching their financial goals.
Hugo Petricioli, country manager for México, Franklin Templeton Investment, said" "In the long term, the greatest risk investors run is remaining too risk-averse for too long, building portfolios based on short-term phenomena, not long-term realities, which puts them in danger of falling well short of their goals. A smart approach to managing investment risk is not to categorically avoid risks but to ensure that risks taken are intended, understood and appropriately compensated with an eye on achieving longer-term investment goals."
Investor Perceptions
The survey has shown that investor perception often diverges from reality, a fact that may impact investors’ ability to make well-informed investment decisions. Just over half (55%) of investors believe their local stock market was up last year, when in reality, 17 of the 22 markets surveyed (77%) experienced positive performance.
In 2013, about one-half of all investors said the stock market was up; this was quite a bit lower than their expectations for 2013. This caused a decrease in their 2014 perspective, although positive overall, from 79 to 71% of total respondents believing the market will be high and increasing from 10 to 17% the ones who believe it will be down.
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By GlobalDataAsset Class Expectations
Consistent with 2013 survey findings, real estate and precious metals topped the list of asset classes that investors expect to perform best in the year ahead. Over half (59 percent) of Mexican investors believe real estate will be among the top-performing asset classes this year.
Precious metals fell out of favor with some investors this year, dropping from 61 to 49%, while investors’ outlook for stocks was up 3% year-over-year.
Of the countries surveyed, investors in Japan and Hong Kong showed the greatest preference for stocks, with over 77% ranking stocks among the top three asset classes for expected 2014 performance. Greek investors had the most optimistic outlook for precious metals, while Australian and Malaysian investors showed the strongest preference for real estate investments this year.
Investors See Most Risk and Reward Potential in Stocks
While investors see the most potential in stocks this year, they also recognize the risks involved with investing in the asset class. Regionally (Latin America), stocks topped investors’ lists of the asset classes they believe will carry the most risk this year with 40%, followed by the US dollar and government securities (with 39 and 30% respectively). In México, on the contrary, stocks occupy the third place with 35%, preceded by the US dollar and government securities with 36 and 38% respectively.
Investors Look Beyond their Borders for Opportunity
Globally, two-thirds of investors believe the best equity and fixed income opportunities will be found outside their home countries this year, echoing findings from Franklin Templeton’s 2013 survey.
Investors in México showed great interest in investing abroad — mainly in the U.S./Canada, their own country and Asia, as they consider these regions will offer the best returns in stocks with 27, 23 and 19% respectively. In fixed income, Mexican investors consider that over the next 10 years, US/Canada with 22%, México with 21% and Asia with 15% will show the best returns.
Where is the Money Heading? — Asset Class Preferences for 2014
On a whole, global investors indicate they are most likely to add real estate, home country and emerging market equities, as well as precious metals to their portfolios in 2014. In México, a similar belief is perceptible.
More than half (58%) plan to increase their investment in real estate and little more than one third (37%) will most likely go for precious metals. Thirty-two percent plan to add or increase their exposure to domestic equities while around one quarter (26%) plan to increase their investment in bonds in their country.
Tax Effect on Future Investment Decisions
With the new legislation of a 10% capital gains tax on individual profits from stocks sales, the majority (88%) of Mexican investors feel it will very likely impact their future investment decisions. Only 5% of the respondents believe the tax reforms will not have an impact on their investment decisions.
Benefits of Consulting a Financial Advisor
The survey results show that, globally, investors who work with a financial advisor have more diversified portfolios and are more likely to invest outside their home countries than those who don’t work with an advisor. They’re also more likely to be optimistic about reaching their financial goals and have higher expectations for their investment returns.
Greg Johnson, chairman, CEO and president of Franklin Templeton Investments, said: "Navigating global markets can be a complex endeavor. These survey results show investors can benefit from working with a financial advisor to make fully informed investment decisions to appropriately position their portfolios."
Top Concerns — Fiscal Policy in the US and Europe
When asked to rank their top concerns about investing in Europe and the US, global investors showed the greatest concern about government fiscal issues and their drag on the economy.
When considering European investment opportunities, 64% of Mexican investors ranked "euro zone debt crisis" as their top concern (62% globally). "Slow economic outlook" (42%) and "general market volatility" (32%) rounded out the top three concerns.
When considering the US, 60% of global investors ranked "large fiscal debt" as their top concern and 56% of Mexican investors did as well, followed by "slow economic outlook" (41%), same as in Europe.
