Fund managers optimistic about ’13 prospects

MANILA, Philippines—Investment professionals across the globe are optimistic about global growth prospects for 2013, but they believe much work needs to be done to restore financial market integrity.

Based on the CFA (Chartered Financial Analyst) Institute 2013 global market sentiment, about 40 percent of respondents see an expansion in the global economy in the coming year, a six-point increase from last year’s poll.

But citing an overwhelming lack of trust in finance, CFAs stress the need to develop a culture of ethics and integrity inside financial firms.

“Mis-selling” of financial products topped respondents’ 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—is seen as the most serious ethical issue in the coming year, according to 29 percent of members, up significantly from 13 percent last year.

In terms of asset classes, equities are still expected to outperform.

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.

Equity markets expected to provide the best investment opportunities in 2013 are the United States (32 percent), China (17 percent) and Brazil (10 percent).

The annual survey measured the opinion of 6,783 CFA charterholders and members across the globe.

“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, managing director of standards and financial market integrity at CFA Institute.

“We’ve seen the industry become more vocal about the behavior 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,” he said.

In the case of the Philippines, CFA Society of the Philippines president April Lee-Tan said the country’s impressive gross domestic product growth—together with relatively benign inflation—would put the country in an excellent position to capture more foreign direct investments in light of the improving outlook of the global economy.

“The drive of the current administration to improve governance has already enhanced investor confidence in the Philippines. However, we must ensure that the money coming in is channeled to the right sectors of our economy so that the most number of Filipinos benefit,” Lee-Tan said.

While 40 percent of CFA respondents 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).

The respondents are generally optimistic on 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).

The survey also showed that ethical cultures and behavior 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 believe the most effective remedy is improved ethical culture from top management.

Meanwhile, the most important industry/regulatory action to improve market trust and confidence in 2013 is not new regulations, but improved enforcement of existing laws, according to 24 percent of the respondents.

Survey respondents consider the European sovereign debt crisis (37 percent) and weak economic conditions (31 percent) as the two biggest risks to global economic growth in 2013.