Another financial crisis is imminent, say investors

Young affluent Asians are the most pessimistic retail investor group about the world economy and yet they expect 10.5% returns this year, according to a survey to be released today.
Another financial crisis is imminent, say investors

Investors’ expectations remain unrealistically high, despite a widespread belief that another global financial crash is imminent, according to the findings of a survey* to be released today.

Take affluent young Asians, for instance. Eight in 10 ‘millennials’ (those aged 18 to 39) in the region –more than the other categories in the poll – feel the world is on the brink of another financial crisis, and yet they say they expect an investment return of 10.5% for 2016.

Indeed, such economic pessimism and unrealistic return expectations are widespread globally (see first illustration below), according to a survey* conducted by Legg Mason Global Asset Management from December 2015 to January.

Individuals are more cautious than in the past, with 64% of respondents globally saying they were conservative investors, up from 59% in 2015. Moreover, 75% of millennials worldwide said they were losing faith in making money in financial markets, as against 61% of investors aged 40 or over (see figure 2).  

The top two investment concerns cited by millennials worldwide were economic instability (23%) and inflation (21%). And 71% of millennials expect global interest rates to rise in the next one to two years.

Asian investors are more worried than their peers elsewhere because market volatility stemmed largely from their home region last year, said Freeman Tsang, head of China and Hong Kong at Legg Mason.

The MSCI emerging markets Asia index rose 14% in the first four months of 2015, then dropped 27% in the following four months before stabilising in August. The volatility was mainly driven by the sentiment around China equities, with the mainland benchmark CSI300 index gaining 55% from the start of 2015 to peak on June 12, then falling 40% by December 31. Meanwhile, the MSCI World equity index rose 5.5% in 2015 to peak on May 22, before dropping 15% from there to the end of September.

Figure 1Similar to the 2015 findings, income-producing investments, such as high-yield bonds or equity income funds, remain the most popular assets globally, with 89% of millennials worldwide saying they were optimistic about such allocations, versus 81% of older investors.

“We always think millennials are risk-takers with a more aggressive approach, but they are actually aggressive and risk-adverse, so they want higher income with lower risk,” Tsang told AsianInvestor

Low-beta, market-neutral products with stable returns and low volatility are suitable for this category of investors, he added. ”They want to minimise beta while achieving return.”

*The survey polled 5,370 high-net-worth-individuals with a minimum of $200,000 in investable assets across 19 countries. Of the respondents, 1,267 were aged 18-39, while the rest were over 40. Of those polled, 1,341 were in Asia – specifically China, Hong Kong, Japan, Taiwan and Singapore. The survey was conducted in December 2015 and January. 

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