The Eurozone debt crisis is considered by the overwhelming majority of financial advisers and investment intermediaries in the UK to be the most significant threat to global growth over the next six months.
Some 92% cite it as the biggest global macroeconomic challenge, according to the latest Barings Investment Barometer. The number is up from the last quarterly survey2 (84%), underscoring the profound concerns that investment professionals continue to have about the state of the Eurozone.
The barometer, which explores intermediaries’ attitudes towards the current economic environment and their views on major asset classes, found that the inability of over-leveraged economies to reduce their debts was of concern to 59% of advisers. The risk of a second banking crisis was cited as a concern by two in five (39%) advisers, up from 28% three months ago when the last Barings Investment Barometer was undertaken.
Fears around the Eurozone are strongly reflected in investment sentiment: three in five (59%) respondents are either ‘quite’ or ‘very’ unfavourable towards European equities. In contrast, an overwhelming 91% of advisers are favourable towards both emerging market and Asian equities. Interestingly, the market which advisers are most positive towards is US equities, with 94% seeing this as a favourable investment opportunity for their clients (up from 89% in the last survey).
Asked what they are doing to help their clients through the current market volatility, nearly two thirds (64%) of investment professionals said that portfolio diversification has become key. This is closely followed by encouraging more regular reviews of investment portfolios to make sure that risks are properly managed (44%). Just over a third (36%) of intermediaries have increased the level of risk/return analysis, while 31% of respondents said they had been encouraging investment in multi-asset products.
Rod Aldridge, Head of UK Retail Distribution at Barings, says: “It’s not surprising that advisers see the Eurozone debt crisis as the biggest threat to macroeconomic growth over the coming six months. These latest barometer results suggest they are focused on looking for other opportunities for their clients, and some of their favoured options seem to be emerging markets, Asian economies and the US.”
The effects of inflation are also still a concern, with 72% of advisers saying that their clients were worried about the impact that it was having on their cash deposits. As a result 67% were unfavourable towards cash as an asset class. Fears about the risk of rising inflation has grown since the last survey, with 12% of advisers concerned about this compared with 7% in the last survey. As a result, two thirds (66%) of advisers have found that their clients have – or are planning to – reallocate cash investments to equities, inflation-linked bonds or property.
Aldridge says: “Given the economic uncertainty, it is very encouraging to see that diversification, in which multi asset portfolios play a significant role, remains fundamental to investment professionals’ strategies. It is important to be prepared for market changes and developments and a multi asset approach to managing risk is proving to be an effective way to deal with the current challenges.”