Annual CFA Institute survey suggests Hong Kong members worried about city's competitiveness
An annual global survey of CFA Institute members finds that Hong Kong investment professionals are less confident about the growth prospects of the local economy. This runs counter to the growing optimism displayed by members worldwide. Within Asia Pacific, Hong Kong is also the most cautious about local job prospects for the investment sector in 2014.
Only 37 percent of members in Hong Kong responding to the CFA Institute 2014 Global Market Sentiment Survey (GMSS) believe the local economy will expand in the coming year, compared to 43 percent who had the same view last year. Globally, the percentage of respondents who expect their local economy to expand actually grew to 57 percent this year from 45 percent last year.
This muted sentiment is also reflected in their views on the job market. Only 21 percent of Hong Kong respondents expect jobs in the investment industry to increase, while 25 percent think employment will shrink.
"The findings suggest that investment professionals are concerned that Hong Kong is losing its competitive edge and are unsure about the city's sustainable economic development in the long term," says Ashley Khoo, CFA, vice-president and advocacy chair of The Hong Kong Society of Financial Analysts (HKSFA). "We at HKSFA believe, however, that there are changes that can be made to help Hong Kong stay ahead of the curve. We have recommended to the Hong Kong government a number of initiatives to enhance Hong Kong as a leading asset management centre such as introducing incentives to capture more foreign capital, attracting more Mainland opportunities, strengthening the integrity of our market, and safeguarding Hong Kong's reputation for investor protection. We believe this will help us capture a larger share of the region's growth opportunities. We welcome a continued dialogue with the authorities and other stakeholders to help enhance Hong Kong's position as a leading global financial centre."
Hong Kong members are more upbeat though when assessing global market prospects. More respondents this year (54 percent) expect the global economy to expand, compared to last year (31 percent). This is in line with worldwide sentiment, although respondents in Hong Kong are still among the most cautious.
Globally, 63 percent of CFA Institute survey respondents think that the global economy will expand in 2014, representing a significant shift in opinion over the previous year (40 percent). However, more than half (54 percent globally, 52 percent in Hong Kong) point to a lack of ethical culture within financial firms as the factor that has contributed the most to the current lack of industry trust. There is also little confidence that the integrity of capital markets is improving (26 percent globally, 22 percent in Hong Kong).
"The number of our members who expect the global economy to expand has nearly doubled in the last two years. However this is no time for those in finance to become complacent," says John Rogers, CFA, president and CEO of CFA Institute. "The survey reflects that investor trust has been eroded and in order for the financial industry to be an extraordinary force for good, we must embrace ethical behavior at all levels. As markets rebound, we are working to ensure that attention does not shift away from meaningful reforms that might restore investor trust and strengthen the financial system's ability to resist shocks in the future."
Asia Pacific investment professionals positive about growth in 2014, but worries evident at local level, particularly in Hong Kong and mainland China
-- Global economy expected to improve. Fifty-six percent of APAC respondents expect the global economy to expand, up from 32 percent in last year's survey. Within APAC, mainland China respondents are the most cautious, with only 48 percent expecting expansion, followed by Hong Kong, with 54 percent expecting the global economy to expand in the coming year.
-- Opinion divided over local economy. Fifty-two percent of members who responded in APAC expect their local markets to grow in 2014, up slightly from 46 percent in last year's survey. Japan is the most confident at 73 percent. Hong Kong respondents are most cautious however, with only 37 percent expecting the local economy to expand (43 percent in last year), followed by mainland China at 45 percent.
-- Marked increase in optimism for equities. Sixty-eight percent of APAC respondents this year identified equities as the asset class most likely to perform best, up from 41 percent in 2013. Within APAC Japan is the most positive at 80 percent, followed by Hong Kong at 71 percent and mainland China at 61 percent. India is the least so at 54 percent.
-- Asset bubbles. Sixty-eight percent of APAC respondents anticipate a financial bubble in the coming 12 months, compared to only 49 percent in the Americas and 50 percent in EMEA. Fifty-two percent of APAC members believe the bubble will be in real estate – climbing as high as 77 percent in mainland China, 68 percent in Hong Kong and 59 percent in Singapore.
-- Weak economic conditions (28 percent), political instability (24 percent) and growth rates (18 percent) in emerging economies are identified as the biggest risks to local markets. Many more APAC members are concerned about growth rates in emerging economies, than members in other regions (5 percent in the Americas, 6 percent in EMEA).
APAC members split on regulatory/industry actions most needed to reform the local market
-- Globally, better enforcement of existing laws is the top choice (30 percent). The same view is reflected in mainland China (34 percent), India (32 percent) and Australia (30 percent). But respondents in Japan (11 percent), Singapore (16 percent) and Hong Kong (21%) are the least concerned about enforcement.
-- Members in Japan (48 percent), Hong Kong (31 percent) and Singapore (23 percent) are more likely to point to the need for stronger corporate governance standards.
-- Respondents in mainland China (27 percent) are more concerned about improving transparency of financial reporting and other corporate disclosures than any other territory
Financial derivatives an ethical issue for global markets, market fraud and financial reporting top ethical issues for local markets in APAC
-- Compared to the global average more APAC members identify market fraud and the integrity of financial reporting as the principal ethical issues facing local markets. Respondents in mainland China (55 percent) are by far the most concerned about market fraud, followed by Japan (34 percent) and Singapore (30 percent). In Australia however mis-selling dominates as the largest concern (48 percent).
-- APAC members feel differently about the global market however, with the largest proportion (27 percent) citing the disclosure and use of financial derivatives as the most serious ethical issue facing global markets. Their peers elsewhere do not think this is as serious an issue (only 18 percent in AMER and 21 percent in EMEA).