Investment Profession More Optimistic about Global Economic Growth in 2013

Investment professionals across Canada and worldwide are more optimistic than last year about global economic growth heading into the new year, according to the CFA Institute 2013 Global Market Sentiment Survey.

A greater number of those surveyed (40 percent) believe the global economy will expand in 2013, a six point increase from last year's poll. However, CFA Institute members believe there is much work to be done to restore financial market integrity. Citing an overwhelming lack of trust in finance, members think the primary fix is to encourage a culture of ethics and integrity inside financial firms. The annual survey measured the opinion of 6,783CFA charterholders and members; to review the complete report and survey results, visit www.cfainstitute.org/gmss.

"There is mounting optimism around global economic growth from both investors and the financial industry, despite ongoing issues like the European sovereign debt crisis and significantly greater concern about mis-selling," said Kurt Schacht, CFA, managing director of standards and financial market integrity at CFA Institute. "We've seen the industry become more vocal about the behaviour that led to the global financial crisis, and survey respondents are emphatic about the need for stronger ethical culture at financial firms.

Our members are convinced that to build a more trustworthy industry, change must start with top management to develop a culture where ethical practice is just as important as investment performance."

Significant highlights of the survey - both global and Canada-specific results - include:

Global economy expected to improve. While 40 percent expect the global economy to expand, only 20 percent believe it will contract, down from 29 percent a year ago. Those in advanced economies (42 percent) are more optimistic than members in developing economies (35 percent).

Optimism for local economies, except in Europe. Almost half (45 percent) of investment professionals think the economies of their own countries will expand in 2013, up slightly from 42 percent last year. By stark contrast, only 28 percent of those in Europe expect their economies to expand in the new year. Also, those in developing economies (56 percent) are markedly more optimistic than members in advanced economies (43 percent).

Equities expected to outperform all asset classes. Half of respondents globally think equities will provide the highest expected total return in 2013, up from 41 percent a year ago - when compared to bonds, cash, commodities and precious metals. Only four percent expect cash to outperform, down sharply from 2012.

Stocks and bonds more popular as investment vehicles in Canada than globally. When asked which investment vehicle they will use the most in 2013, 47 percent of Canadian investment professionals stated individual stocks and bonds, compared with the global average of 38 percent. By contrast, 11 percent of Canadian respondents intend to use mutual funds, compared with the global average of 16 percent.

Ethical cultures and behaviour within financial firms must change. More than half of respondents (56 percent) cite a lack of ethical culture within financial firms as the primary contributor to the low level of industry trust. Respondents think the most effective remedy is improved ethical culture from top management, selected by 40 percent of members as the action that is most needed. Another 26 percent of members identified the most needed action as increased adherence to ethical codes and standards.

Better enforcement favoured over new laws. The most important industry/regulatory action for improving market trust and confidence in 2013 is not new regulations, but improved enforcement of existing laws (24 percent).

Mis-selling of financial products top ethical concern locally. Mis-selling—or the pushing of unsuitable products to obtain a commission, or failure to provide advice tailored to the client's needs—will be the most serious ethical issue in the coming year, according to 29 percent of members (up significantly from 13 percent last year).

Top risks to economic growth. Survey respondents consider the two biggest risks to global market growth to be the European sovereign debt crisis (37 percent) and weak economic conditions (31 percent).

United States considered the best investment opportunity. When asked to rank the three equity markets that will provide the best investment opportunities in 2013, the United States (32 percent), China (17 percent), and Brazil (10 percent) emerged as the top three markets.

Outlook is bleak for the European sovereign debt crisis. Most respondents (77 percent) believe that the European sovereign debt crisis will get worse or stay the same. Furthermore, 37 percent of members worldwide are concerned about the threat of the European debt crisis on the global economy.

Canadians more optimistic about 2013 employment opportunities. Forty-nine percent of global members expect employment opportunities for investment professionals to stay about the same in the coming year, similar to last year's finding.

This compares to 61 percent of Canadian members who think employment opportunities will stay about the same. In Canada 16 percent believe opportunities will increase, similar to the global sentiment (17%), whereas a more optimistic 24 percent think opportunities will decrease, a difference of 9 percent compared to the global response of 33 percent. 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 30 toNovember 13.

on December 16, 2012