Investment professionals worldwide expect the global economy to grow an average of just 2 per cent in 2015, a report said.

Political risks, including secessionist and nationalistic movements, as the most underestimated risk that could negatively affect markets in the next five years, added the 2015 Global Market Sentiment Survey released by the CFA Institute, a global association of investment professionals.

Survey respondents expect only modest gains in equity market indices, with the S&P 500 predicted to climb 4.8 per cent, the EuroStoxx 50 to increase 1.9 per cent, and a 1.6 per cent rise for the Nikkei 225. Members also expressed concern about ethical issues, including market fraud and the need for improved regulation and oversight of global systemic risk to improve investor trust and market integrity.

“The survey results show low expectations from our members for global economic growth and market performance over the next year,” said Kurt Schacht, CFA, managing director, CFA Institute.

“Our members are wary of sluggish developed market economic growth and the effects of political disruptions. At the same time, market fraud, like insider trading and the integrity of financial reporting, remains a cause for concern. Each year we see through this survey that our members are particularly attuned to the factors that shape investor perceptions of trust in the integrity of the capital markets and the steps that need to be taken to improve that trust.”

Investment professionals cautious on the growth of global economy in 2015

•    Caution around prospects for global economy, local markets also expected to slow. On average members expect the global economy to grow 2 per cent in 2015. Respondents in India expect robust 5.8 per cent growth in the economy there, and members in China anticipate 6.2 per cent growth, but members in Switzerland, Japan, France, and Brazil all expect growth of less than 1 per cent in their home markets.

•    World market indices predicted to rise. Over the 15 months from October 1, 2014 to December 31, 2015, the S&P 500 index is expected to increase 4.8 per cent, the EuroStoxx 50 by 1.9 per cent, and the Nikkei 225 by 1.6 per cent. Survey respondents predict the US 30-year Treasury bond will yield 3.46 per cent, up from 3.21 per cent as of September 30, 2014.

•    United States and China still considered the best investment opportunities. The United States and China remain the top picks for equity market performance in the coming year, as was the case in the 2014 survey, followed this year by India and Russia.  

•    Continued concern about the end of quantitative easing is a risk to performance in local markets. 57 per cent of respondents feel that efforts by global central banks to wind down quantitative easing would have a negative impact on their local markets, down from 68 per cent last year. In contrast, when asked what would have the biggest positive impact on global markets in 2015, almost one third (30 per cent) of survey respondents chose “continued accommodative central bank policies.”

Members call for improved global oversight and local enforcement to improve market integrity

•    Calls for improved oversight to build investor trust. Globally, 28 per cent of respondents indicated that improved regulation and oversight of global systemic risk is the action most needed to help improve investor trust and market integrity. A higher proportion of members in Asia-Pacific (40 per cent) than in Europe, the Middle East, and Africa (29 per cent) and the Americas (23 per cent) indicated this.

•    Financial transparency. The need for improved transparency of financial reporting and other corporate disclosures was cited by 21 per cent of members as the most important action needed to restore trust and market integrity. A higher proportion of members in the Americas (26 per cent) than in both Europe, the Middle East, and Africa (16 per cent) and the Asia-Pacific region (15 per cent) indicated that this was a top concern.

•    Need for greater enforcement of existing laws in local markets. Members indicated that improved enforcement of existing laws and regulations (26 per cent), closely followed by improved corporate governance practices (24 per cent), are the regulatory or industry actions most needed to improve investor trust in their home markets in 2015.

Market fraud and integrity of financial reporting are the most serious concerns for global market integrity

•    Most serious issues facing global and local markets cause continued concern. Market fraud, such as insider trading (25 per cent), and the integrity of financial reporting (24 per cent), is viewed as the most serious ethical issues facing global markets in 2015. Concerns about mis-selling at the local market level have gradually decreased year on year to 21 per cent in 2015, though it remains a top concern in many markets.

•    Mis-aligned incentives a leading concern. Mis-aligned incentives of investment management services are cited as a leading concern at the local market level by 21 per cent of members.

Ethical culture in financial firms continues to be the biggest area of opportunity to improve trust in the industry

•    Unethical culture to blame for lack of trust in the financial industry. Over half of members (63 per cent) point to a lack of ethical culture within financial firms as the factor that has contributed the most to the current lack of trust in the financial industry. More members in Europe, the Middle East, and Africa (67 per cent) and the Asia-Pacific region (65 per cent), as compared to the Americas (59 per cent), chose this response.

•    Firm level action is necessary to improve investor trust. Better alignment of compensation with investor objectives (31 per cent), a zero-tolerance policy by top management for ethical breaches (27 per cent), and increased adherence to ethical codes and standards (21 per cent) are the most needed firm-level actions in the coming year to improve investor trust and confidence.

“Concerns about market integrity remain at the forefront of our members’ minds,” said Schacht. “Improved oversight of global systemic risk is the most important action needed over the coming year to build trust and market integrity. This finding suggests that in the six years since the global financial crisis, the degree of cross-border cooperation between regulators with regard to detecting and mitigating systemic risk does not yet appear to be sufficient.”- TradeArabia News Service