Concern for the global investment market has deepened over the past year, as European sovereign debt and slow growth in China continues to drive market volatility.
That’s according to the Financial Services Council (FSC) Chief Investment Officer Investment Index which asked 16 CIOs to rate their outlook of global investment markets over the next 12 months on a scale of -100 to 100.
Companies included in the survey were Aberdeen Asset Management, AXA Australia, BT Investment Management and Goldman Sachs and Partners Australia.
In relation to six individual asset classes (both Australian and international fixed income, property and equities), the index recorded an overall global outlook score of 20 – down from 25 in December 2010.
Last year’s investment index indicated that the fear of a European debt crisis was a concern for most respondents. With that concern now realised, FSC chief executive John Brogden said chief inevestment officers now lack confidence in the European and US Governments’ ability to deliver a solution to the debt problems, and therefore expect investment conditions to remain volatile.
"As a result of these issues, negative sentiment on international fixed income has spread to domestic fixed income and international equity," he said
While chief inevestment officers expected Australian and international equities to outperform across the six asset classes in the index, international equities fell slightly more in sentiment than those offered in Australia.
International property also fell sharply, with a score of around -15 – respondents again pointing to European sovereign debt, as well as the perception of a property bubble in China, as the main driver of pessimism in this sector.
"Concerns about the Chinese Government’s policy response to inflation and the potential contagion from Europe to China have increased the risk of slower growth," Brogden said.
In more positive territory, there is a general view among chief inevestment officers that equities are currently undervalued, and this is driving optimism in this asset class. Growth is also expected to be driven by good price earnings ratios and strong balance sheets, the index stated.
Coupled with the expected failure of governments to resolve European debt problems, respondents referred to the economic slowdown in China as a significant short-term (in the next 12 months) economic factor for the global investment market.
Over the next five years, chief inevestment officers indicated that the most significant risk for global investing over the medium term was the impact of governments unwinding debt in the United States and Europe. The effect of slow growth on political stability in China was also cited as a long-term risk factor.
