Investment professionals worldwide expect the global economy to grow an average of just 2 percent in 2015, according to the CFA Institute 2015 Global Market Sentiment Survey (PDF). 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. The annual CFA Institute survey measured the opinion of 5,259 CFA® charterholders and members, representing the views of professional investors around the world. To review the complete report and survey results, visit www.cfainstitute.org/gmss.
Investment professionals cautious on the growth of global economy in 2015
Survey respondents expect only modest gains in equity market indices, with the S&P 500 predicted to climb 4.8 percent, the EuroStoxx 50 to increase 1.9 percent, and a 1.6 percent 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.
“The survey results show low expectations from our members for global economic growth and market performance over the next year,” said Kurt Schacht, CFA, managing director, CFA Institute. “Our members are wary of sluggish developed market economic growth and the effects of political disruptions. At the same time, market fraud, like insider trading and the integrity of financial reporting, remains a cause for concern. Each year we see through this survey that our members are particularly attuned to the factors that shape investor perceptions of trust in the integrity of the capital markets and the steps that need to be taken to improve that trust.”
Members call for improved global oversight and local enforcement to improve market integrity
- Caution around prospects for global economy, local markets also expected to slow. On average members expect the global economy to grow 2.0 percent in 2015. Respondents in India expect robust 5.8 percent growth in the economy there, and members in China anticipate 6.2 percent growth, but members in Switzerland, Japan, France, and Brazil all expect growth of less than 1 percent in their home markets.
- World market indices predicted to rise. Over the 15 months from 1 October 2014 to 31 December 2015, the S&P 500 index is expected to increase 4.8 percent, the EuroStoxx 50 by 1.9 percent, and the Nikkei 225 by 1.6 percent. Survey respondents predict the US 30-year Treasury bond will yield 3.46 percent, up from 3.21 percent as of 30 September 2014.
- 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.
- Continued concern about the end of quantitative easing is a risk to performance in local markets. 57 percent of respondents feel that efforts by global central banks to wind down quantitative easing would have a negative impact on their local markets, down from 68 percent last year. In contrast, when asked what would have the biggest positive impact on global markets in 2015, almost one third (30 percent) of survey respondents chose “continued accommodative central bank policies.”
Market fraud and integrity of financial reporting are the most serious concerns for global market integrity
- Calls for improved oversight to build investor trust. Globally, 28 percent 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. A higher proportion of members in Asia-Pacific (40 percent) than in Europe, the Middle East, and Africa (29 percent) and the Americas (23 percent) indicated this.
- Financial transparency. The need for improved transparency of financial reporting and other corporate disclosures was cited by 21 percent of members as the most important action needed to restore trust and market integrity. A higher proportion of members in the Americas (26 percent) than in both Europe, the Middle East, and Africa (16 percent) and the Asia-Pacific region (15 percent) indicated that this was a top concern.
- Need for greater enforcement of existing laws in local markets. Members indicated that improved enforcement of existing laws and regulations (26 percent), closely followed by improved corporate governance practices (24 percent), 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
- Most serious issues facing global and local markets cause continued concern. Market fraud, such as insider trading (25 percent), and the integrity of financial reporting (24 percent), are viewed 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 percent in 2015, though it remains a top concern in many markets.
- Mis-aligned incentives a leading concern. Mis-aligned incentives of investment management services are cited as a leading concern at the local market level by 21 percent of members.
- Unethical culture to blame for lack of trust in the financial industry. Over half of members (63 percent) 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. More members in Europe, the Middle East, and Africa (67 percent) and the Asia-Pacific region (65 percent), as compared to the Americas (59 percent), chose this response.
- Firm level action is necessary to improve investor trust. Better alignment of compensation with investor objectives (31 percent), a zero-tolerance policy by top management for ethical breaches (27 percent), and increased adherence to ethical codes and standards (21 percent) are the most needed firm-level actions in the coming year to improve investor trust and confidence.
“Concerns about market integrity remain at the forefront of our members’ minds,” said Schacht. “Improved oversight of global systemic risk is the most important action needed over the coming year to build trust and market integrity. This finding suggests that in the six years since the global financial crisis, the degree of cross-border cooperation between regulators with regard to detecting and mitigating systemic risk does not yet appear to be sufficient.”
The annual CFA Institute Global Market Sentiment Survey seeks input from CFA Institute members to gather data on key market and economic issues in the coming year. The survey was conducted online from October 14 to October 28.