Investment Perspectives for 2013

The CFA Institute, true to its mission of promoting ethical and trustworthy investment markets, conducted its annual Global Market Sentiment Survey to gather feedback on market sentiment, performance and market integrity issues in 2013. An online survey of 6,783 members of the Institute covering 22 countries (both advanced and developing) was conducted from 30th October to 13th November 2012.

The survey reveals members’ cautious optimism about the future of financial markets in 2013, tempered by their concern that the underlying problems that contributed to the worldwide economic crisis and the decline in the integrity of the markets have not yet been solved. As experienced participants within the global financial services industry, the opinions expressed in this report are a strong reflection of the views of highly educated, ethical practitioners with unique insights into the opportunities and risks of the financial markets.

Global economic growth

Of the members surveyed 40% believe that the global economy will expand; 40% believe that it will stay roughly at its current level while only 20% believe that the global economy will contract. The outlook is clearly more optimistic than last year, when only 34% believed the global economy to expand and nearly 29% said the global economy would contract.

Despite the continued worldwide impact of the European sovereign debt crisis, a higher proportion of advanced economies (42%) than developing economies (35%) think global economic expansion will happen in 2013.

Developing economies exhibited more optimism about local economic growth in their markets than advanced economies. The consensus seems to be that the future looks brighter for local economic growth, unless you are in Europe.

However, the biggest concerns for local markets include weak economic conditions in advanced economies (38%), political instability in developing economies (18%), and the European sovereign debt crisis in Europe (17%).

Nearly 50% of those surveyed expect equities to outperform all asset classes, a substantial leap from the 41% who believed so last year.

When asked which equity market will provide the best investment opportunity in 2013, the United States, China and Brazil emerge as the top three.

Restore integrity

A staggering 98% of the members surveyed acknowledge a current lack of trust in the financial industry. Despite the cautious optimism regarding short-term issues, longer-term issues (the ones that helped bring about the financial crisis and whose effects are still being felt) must thus be addressed for continued improvements in economic health and market integrity. In particular, 56% of members identified a continuing lack of ethical culture within financial firms as the major factor contributing to the current lack of trust in the finance industry.

Ethical culture within financial firms needs to be addressed to solve systemic problems that led to the fiscal crisis and that change must come from the top. To help improve investor trust and confidence, 40% of the members surveyed believe that an improved (revisited) ethical culture established and encouraged by top management and executives is essential; while 20% believe an increased adherence to existing ethical codes and standards would well serve the purpose.

The CFA Institute believes that a good place for financial firms and regulatory bodies to start addressing this issue is by adopting its Asset Manager Code of Professional Conduct, which is the global standard of conduct for investment managers to affirm their commitment to ethical principles that put clients’ interests first.