In Spite Optimism for Global Markets, Investors Staying Close to Home

By US Daily Review Staff.

In the near term, respondents remain cautious, conservative and in favour of keeping their investment money close to home, a Franklin Templeton global poll has found. When asked about their long-term perspectives, that sentiment starts to change.

Investment Optimism Building

In its annual global survey, Franklin Templeton found that 44 per cent of investors surveyed from around the world expect a five per cent or greater rate of return on their investments in 2012.  When considering stocks specifically, 40 per cent expect returns of five per cent or greater this year; and optimism increases when respondents consider a 10-year time horizon, with 50 per cent anticipating that same level of positive annualized return.

Conducted earlier this year, the Franklin Templeton Global Investor Sentiment Survey polled more than 20,000 individuals in 19 countries that represent 70 per cent of the world’s GDP.1 The survey provides a unique snapshot of global sentiment and attitudes at a critical juncture in the market cycle.

Recent Global Uncertainty Has Led to More Conservative Investing and Risk Aversion

Uncertainty about the global economy has continued to heavily influence respondents’ attitudes toward investing. Slightly more than half of those surveyed (51 per cent) believe the global economy has deteriorated; and 45 per cent report that they have become “somewhat to more” risk averse over the last three years. Reflecting that conservative outlook, only a minority (one in five) of respondents would seek to make their portfolios more aggressive this year.

“Global uncertainty continues to weigh on investors’ minds, and reinforces the need for a well-diversified investing plan and approach to risk management,” said Greg Johnson, president and chief executive officer of Franklin Templeton Investments in San Mateo, Calif. “This is clearly an area where we believe financial advisors can play a critical role, through the value of their expertise and advice for investors.”

Canada Versus the World

Investment attitudes in Canada echo the survey’s global results. For example, 41 per cent of Canadians surveyed expect a rate of return on their investments of five per cent or greater in 2012 (versus 44 per cent globally). Forty per cent of Canadians expect stocks to return five per cent or greater this year, the same equity forecast expected by global respondents.

“From views on the economy to market outlook, the survey indicates that Canada mirrors the rest of the world,” said Don Reed, president and chief executive officer of Franklin Templeton Investments Corp.’s Canadian based operations in Toronto. “Canada is a nation of immigrants and our investors are a reflection of global attitudes.”

Canadians, however, appear to have a greater appetite for risk. Only 39 per cent of Canadians are more risk averse in the last few years compared to 45 per cent of global investors. Fifty per cent of Canadian investors consider stocks to be the riskiest long-term investment compared to 52 per cent of global investors.

“Our research shows that the Canadian appetite for investment risk is improving since the stock market collapse in 2009,” said Mr. Reed. “Opportunistic investors are best positioned to take advantage of the market’s ups and downs.”

Home Country Bias Drives Behavior

The survey found that respondents have a strong home country bias and a preference to invest closer to home in the near-term. When given the choice to invest in only one region next year, more than half of respondents (56 per cent) would invest in their home country. Surprisingly, however, only 37 per cent believe their home country will offer the best investment returns.

Canadians have an above-average home country bias. When asked to choose a single region for investment in 2012, 65 per cent of Canadians chose their home country. The survey also found that half of Canadian respondents believe their home country offers the best investment returns this year.

Although those surveyed remain hesitant when it comes to investing in global markets, most have dipped their toes in the water. The majority (72 per cent) of global respondents have a limited portion (less than 20 per cent) of their portfolios invested beyond their home countries; whereas, a minority of investors (28 per cent) currently hold 21 per cent or more of their investment portfolio outside their home country. This percentage increases to 44 per cent with those who foresee a fifth or more of their investments to be outside their home country when the time horizon is extended to look out over the next 10 years, indicating a clear trend toward embracing global investing among long-term investors.

Among Canadians, about 73 per cent currently have a low percentage of their investment portfolio outside their local market. The survey indicates Canadian’s global investment exposure will slowly increase over time. By 2022, about 62 per cent of Canadians will hold a low percentage of their investments outside their local market.

“While many investors may have a home country bias for the near-term, the survey findings show that respondents have a longer-term interest in broadening their investment universe across more countries,” said Mr. Johnson.

Respondents Eye Emerging Markets for Strongest Returns

Respondents remain slightly more optimistic about investment opportunities in emerging markets compared to opportunities in developed countries.  Expectations are for emerging markets investments in both stocks and bonds will deliver the strongest returns versus developed markets over the next five years.

Regionally, the participants in the Asia Pacific are the most bullish when it comes to emerging market equities, with 67 per cent expecting annual returns of five per cent or more over the next five years. Whereas, respondents in Europe are slightly less bullish with 56 per cent expecting a similar rate of return.

Globally, participants also see the potential of developed market equities, with just less than half (49 per cent) anticipating an annual return of five per cent or more; compared to those in the Americas, where 57 per cent were most likely to anticipate returns at those levels.

All opinions expressed on USDR are those of the author and not necessarily those of US Daily Review.

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