-- Annual CFA Institute survey finds increased confidence in global and APAC economies
-- But concerns over global market integrity remain, with Singapore and Switzerland top two most critical on lack of ethical culture within firms
-- Worries about market fraud locally and globally deepen significantly in Singapore
Investment professionals worldwide report greater optimism over economic prospects for the coming year, although those in Asia Pacific (APAC) tend to be more cautious, according to the CFA Institute 2014 Global Market Sentiment Survey (GMSS).
The 2014 findings, drawn from 6,561 members surveyed worldwide, show that 63 percent expect the global economy to expand, up from 40 percent in last year's survey. Most optimistic are members in the United Kingdom (78 percent) and Brazil (74 percent), while those in Hong Kong and mainland China are the least (54 percent and 48 percent respectively). In Singapore, optimism has almost doubled with 59 percent predicting an expansion, up from 32 percent a year ago.
Like their peers in other regions, APAC members do not rate the integrity of global markets in the past year (2013) highly, although respondents are more likely to think it will improve (32 percent), compared to their peers in Europe, the Middle East and Africa (EMEA - 27 percent) and in the Americas (AMER - 23 percent).
"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 behaviour 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."
Respondents in Singapore and Switzerland are the most critical about the lack of ethical culture within financial firms, with 63 percent in the former and 71 percent in the latter naming it as the top factor contributing to the current lack of trust in the finance industry. Globally, just over half (54 percent) of respondents indicate so.
Singapore also leads the world's major markets in calling for top management and executives to establish and encourage better culture within the firm. Almost half (49 percent) of respondents here say that is the most needed action to help improve investor trust and confidence. Globally, 40 percent echo this view.
Members in Singapore are also among the most concerned about market fraud and feel that this issue will worsen going ahead. Almost three in 10 (30 percent) respondents here see market fraud as the most serious ethical issue facing both local as well as global markets in the coming year. This is almost three times higher than last year, when only 11 percent cited this as the most serious ethical issue locally, while 15 percent felt it was the dominant problem for global markets. Worldwide, mis-selling (25 percent) ranked as the top ethical issue locally, with market fraud a close second (24 percent).
In rating investment opportunities, respondents worldwide expect equities to perform best, singling out the US and mainland China markets as the top two choices (26 percent and 10 percent, respectively). Just over half (52 percent) in Asia-Pacific anticipate a real estate bubble, with concerns within the region strongest in mainland China (77 percent), Hong Kong (68 percent) and Singapore (59 percent).
"Like their peers worldwide, investment professionals in Singapore are more confident about the global economic outlook for 2014. However, market fraud has emerged as a particular ethical issue here, possibly because the survey was conducted in October, near the height of concern over irregularities in some local listed counters," says Daryl Liew, chair of the advocacy committee and board member of CFA Society Singapore (CFAS). "The strong call for greater ethical culture within firms suggests that the investment community here recognises a need for and also demand higher standards in ethical behaviour and integrity, as Singapore emerges rapidly as a top investment and wealth management centre in the world. This is in line with what CFA Society Singapore and CFA Institute have been advocating, which is to create an environment where investors' interests come first, markets function at their best and economies grow."
Survey Highlights:
Singapore investment professionals positive about growth in 2014, but concerned about market fraud
-- 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, those in Japan are the most optimistic (61 percent) and Singapore a close second (59 percent). Members in mainland China are the most cautious globally (48 percent).
-- Opinion divided over local economy. Fifty-two percent of APAC respondents expect their local markets to grow in 2014. Japan is the most confident within the region and among the top two globally at 73 percent. Hong Kong respondents (37 percent) are the most cautious. In Singapore, 47 percent of respondents expect the local economy to expand.
-- Marked increase in optimism for equities. Sixty-eight percent of APAC respondents have identified equities as the asset class most likely to perform best in the coming year, up from 41 percent in last year's survey. In Singapore, the proportion of respondents who pick equities as the best-performing asset class has leapt to 76 percent, up from 45 percent last year.
-- Weak economic conditions (28 percent), political instability (24 percent) and growth rates in emerging economies (18 percent) identified as the biggest risks to local markets in APAC. Many more APAC respondents (18 percent) are concerned about growth rates in emerging economies than those in other regions (5 percent in AMER, 6 percent in EMEA). This is the top concern in Singapore (34 percent).
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. Mainland China respondents (55 percent) are by far the most concerned about market fraud, followed by Japan (34 percent) and Singapore a close third (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).
