Investment professionals in mainland China are more optimistic about the outlook of the global economy this year than last year, according to a worldwide survey by CFA Institute, the global association of investment professionals. Along with the upswing in overall market sentiment, most of them expect steady or higher job growth in the investment sector.
The CFA Institute 2014 Global Market Sentiment Survey (GMSS) shows that the proportion of respondents in mainland China who expect the global economy to expand more than doubled to 48 percent from 21 percent last year. Their views are in line with a marked improvement in global sentiment – 63 percent of all investment professionals surveyed this year expect the global economy to grow compared with 40 percent last year.
The majority of investment professionals in mainland China are optimistic about the local economy; with almost half of respondents (45 percent) expecting it to grow and 34 percent saying it will remain roughly unchanged. Investment professionals worldwide voted the United States (26 percent) and mainland China (10 percent) as the top two equity markets that will provide the best investment opportunity in 2014. Global confidence in China’s economy is also reflected in how seven in 10 (71 percent) respondents worldwide expect the progress of recovery in China to be a positive boost to their local economies.
This confidence is mirrored in job market expectations in mainland China with nearly half (48 percent) of respondents here saying jobs in the local investment industry will increase. This is double the global rate, where 28 percent of respondents worldwide expect local investment jobs to grow.
Compared to their peers, investment professionals in mainland China are the most confident about global market integrity. Over one in four (26 percent) say the level of integrity of global capital markets is already excellent, and almost four in 10 (39 percent) feel it will improve in 2014. In contrast, globally only one in four (26 percent) respondents think global capital market integrity will improve.
“The number of our members who expect the global economy to expand has nearly doubled in the last two years. However, this is no time for those in finance to become complacent,” said John Rogers, CFA, president and CEO of CFA Institute. “The survey reflects that investor trust has been eroded and in order for the financial industry to be an extraordinary force for good, we must embrace ethical behavior at all levels. As markets rebound, we are working to ensure that attention does not shift away from meaningful reforms that might restore investor trust and strengthen the financial system’s ability to resist shocks in the future.”
Indeed ethical issues and concerns over asset bubbles could cloud the positive outlook in China. An overwhelming 77 percent of respondents in mainland China anticipate a real estate bubble in 2014. This is a consistent worry across other major Asia Pacific markets (Hong Kong – 68 percent, Singapore – 59 percent and Australia 50 percent).
Respondents in mainland China are also less satisfied with local market integrity. More than half (55 percent) say market fraud is the most serious ethical issue in China. Four in 10 (43 percent) say a lack of ethical culture in financial firms is to blame for the current lack of trust. And while about one in three (34 percent) feel that improved enforcement of existing regulations is the most needed action to help improve local market integrity and investor trust, more respondents – four in 10 (41 percent) – have identified industry actions like improved corporate governance practices, as well as greater transparency of financial reporting and other corporate disclosures, as the most urgent and effective reforms instead.
“This shows that while compliance is important, conduct is even more critical. Integrity and ethical reform starts from within,” said David Xie, CFA, president of CFA Society Beijing. “As China’s economy continues to grow and develop, there is much room for us to improve and learn from global best practices to be on par with the most advanced economies, not only in our technical excellence but also ethical excellence. This is in line with what CFA China and CFA Institute have been encouraging and supporting, which is to create an environment where investors’ interests come first, markets function at their best and economies grow.”
Survey Highlights:
Optimism doubles in China over economic growth in 2014, concerns from global level
- Global economy expected to improve. Forty-eight percent of mainland China respondents expect the global economy to expand, up from 21 percent in last year’s survey. Within APAC, Japan respondents are the most optimistic, with 61 percent expecting expansion.
- Opinion divided over local economy. Fifty-two percent of members in APAC expect their local markets to grow in 2014. Japan is the most confident at 73 percent. Hong Kong respondents are more cautious however, with only 37 percent expecting the local economy to expand, followed by mainland China at 45 percent.
- Marked increase in optimism for equities. Sixty-eight percent of APAC members this year identified equities as the asset class most likely to perform best, up from 41 percent in 2013. Within APAC Japan is the most positive at 80 percent, and India is the least so at 54 percent; China at 61 percent.
- Weak economic condition identified as the biggest risks to global markets. Forty-four percent of members in mainland China say weak economic conditions are their top global concern, more than respondents from any other market.
APAC members split on regulatory/industry actions most needed to reform the local market
- Globally, better enforcement of existing laws is the top choice (30 percent). The same view is reflected in mainland China (34 percent), India (32 percent) and Australia (30 percent). But respondents in Japan (11 percent), Singapore (15 percent) and Hong Kong (21%) are the least concerned about enforcement.
- Members in Japan (48 percent), Hong Kong (31 percent) and Singapore (23 percent) are more likely to point to the need for stronger corporate governance standards.
- Respondents in mainland China (27 percent) are more concerned about improving transparency of financial reporting and other corporate disclosures than any other territory.
Financial derivatives an ethical issue for global markets, market fraud and financial reporting top ethical issues for local markets in APAC
- Compared to the global average more APAC members identify market fraud and the integrity of financial reporting as the principal ethical issues facing local markets. China respondents (55 percent) are by far the most concerned about market fraud, followed by Japan (34 percent) and Singapore (30 percent). In Australia however mis-selling dominates as the largest concern (48 percent).
- APAC members feel differently about the global market however, with the largest proportion (27 percent) citing the disclosure and use of financial derivatives as the most serious ethical issue facing global markets. Their peers elsewhere do not think this is as serious an issue (only 18 percent in the Americas and 21 percent in in Europe, the Middle East and Africa “EMEA”).