INVESTOR OUTLOOK REPORT

Transcription

1 INVESTOR OUTLOOK REPORT YOUR BI-ANNUAL ASSESSMENT OF THE FINANCIAL LANDSCAPE AND INVESTOR BEHAVIOURS Winter 2013 THE GLOBAL PERSPECTIVE

2 WELCOME Some six years after the first signs of the financial crisis, uncertainty still reigns over much of the world economy. For many investors, predicting the future, as always, remains challenging. For the time being, economic blue skies still elude the Eurozone with high unemployment and instability at the area s periphery. Negotiations over the UK s role in the European Union further complicate the picture. At the same time, growth potential in the emerging markets continues to fluctuate, and current gold prices do not exactly inspire confidence. Geopolitical risks abound, too: despite encouraging signs from the recent Iranian elections, on-going crises in Egypt and Syria will continue to drag down confidence. In addition, conflicting views on how successfully China will manage its transition to slower growth provide no definitive answers, and the recent liquidity crisis could have unsettled overseas investors. On the more positive side, growth is now more firmly entrenched in the UK and recovery continues in the US. This edition of Investor Outlook suggests that investors are starting to see the light at the end of the tunnel, with the outlook for the medium-term almost uniformly positive. However, those surveyed still see the emerging markets as risky, and with concerns about slow recovery in developed markets still prevalent, it remains to be seen whether investors have enough confidence to inspire the global economy to escape velocity. As the doom and gloom of the financial crisis aftermath lifts, the world will look very different indeed. Now more than ever, Lloyds Bank Private Banking s team of experts and advisers are here to help you navigate your way through it. Iain Kirkpatrick UK Private Banking Director 2

3 CONTENTS 04 EXECUTIVE SUMMARY 08 ECONOMIC AND INVESTMENT OUTLOOK 16 INVESTMENT STRATEGIES 23 INVESTMENT PERFORMANCE 26 CONCLUSIONS 3

4 EXECUTIVE SUMMARY In this 2013 Investor Outlook Report, we present the findings of a survey of 1,000 UK adults and 1,000 nationals of 12 overseas countries 1 carried out in September Respondents were asked for their opinions on the global economy, risks and rewards, and how they manage their investments. References to Investors throughout this report refer to those surveyed and the views they have expressed. 1 Australia, Brazil, Canada, France, Germany, Mexico, New Zealand, South Africa, Spain, Switzerland, the United Arab Emirates (UAE) and the USA please see methodology section for numbers. 1. THE GLOBAL ECONOMY THE ECONOMIC OUTLOOK UK and European investors are far less optimistic about economic prospects in their own country than investors outwith these jurisdictions. All investors, except those in South Africa, are more optimistic the further they look into the future: Over the next six months, only 15% of UK investors rate the economic outlook positive, compared with 30% of overseas investors. There are striking differences between countries. Whereas investors in struggling Eurozone economies are very negative, with 62% of French and 61% of Spanish investors rating the outlook as negative, 63% of investors in the UAE are positive about the short-term. Looking 3-5 years down the road, investors are more optimistic: 43% of UK investors are positive about the medium-term, and 48% of overseas investors are also positive. 4

5 EXECUTIVE SUMMARY THE INVESTMENT OUTLOOK Investors the world over are optimistic about the short-term outlook for the stock market and the property market in their own countries. Investors are broadly positive about the outlook for emerging markets, but agree that prospects in the Eurozone look poor: Looking six months out, 34% of UK investors are optimistic about the outlook for the stock market, compared to 44% of overseas investors. A similar trend is true of property, with UK investors the least buoyant but still, on balance, positive. The outlook is rated positive by 28% of UK investors, with 38% of overseas investors feeling similarly. Just 7% of UK investors are positive for the Eurozone s short-term prospects, with 43% negative. Overseas investors are slightly less pessimistic, with 14% positive against 33% negative. US investors are particularly positive about the stock market, property and the US market in general over the short-term, but are pessimistic about the outlook for the UK. GLOBAL RISKS With the world economy still fragile, the main global concerns held by investors centre on the developed markets particularly the Eurozone. Economic slowdown in emerging markets and in China worries fewer investors, but is still a notable concern: UK investors are most concerned about a slow recovery in the UK and continued slowdown in the Eurozone, with both worrying 67% of investors. The Eurozone is also a concern for overseas investors (56%). Concerns for overseas investors are varied. A full 76% of US investors are concerned about the size of US debt, whereas for investors in Brazil and Mexico it is high inflation that keeps investors awake at night, with 72% and 66% respectively concerned. Concerns about falling commodity prices are highest in those markets in which commodities play a large role, particularly South Africa (59%) and the UAE (54%). Looking at their investments specifically, most concerning to UK investors is slow economic growth in the UK, while concerns about market volatility are receding from previous surveys. Overseas investors are most concerned by volatility, the strength or weakness of the local currency, and local economic growth, with 40% of investors concerned about each of their effects on their own investments. VIEWS ON CHINA AND GOLD Investors were also asked about two developing global issues economic slowdown in China, and the fall in gold prices: Investors across the world are split on the future contribution of the Chinese economy to overall global growth, with UK investors noticeably less positive about Chinese growth over the next 12 months than their overseas counterparts. In particular, investors in China s fellow emerging markets such as Mexico and Brazil were positive, with 59% and 58% respectively believing that China will contribute more to global growth over the next 12 months than it has previously. By contrast, only 18% of American investors felt similarly. Investors are in agreement that they expect gold prices will remain low in the medium term, before recovering, with 44% of UK investors and 51% of overseas investors holding this opinion. Reflecting a general lack of confidence, investors in France and Spain were the least confident gold prices will recover, with nearly a fifth (18% and 19% respectively) believing prices will stay low in the long-term. 51% of overseas investors are in agreement that they expect gold prices will remain low in the medium term before recovering. 5

6 EXECUTIVE SUMMARY 2. INVESTMENT STRATEGIES GLOBAL MARKETS Investors across the world are not in agreement about the most attractive world markets from an investment perspective, with views of markets such as the UK, China and the US varying widely. However, investors are more of one mind with regards to the biggest risks in the world economy, with all investors most wary of the Eurozone and Russia: UK investors believe that China and Brazil offer the highest potential returns for investors (14% each). Overseas investors believe that China offers the highest potential (17%) followed by the US and Brazil (12% each). The Eurozone is seen as the riskiest market to invest in by 28% of UK investors and 26% of overseas investors. The Russian market, though, is also seen as risky, with 14% of UK investors and 13% of overseas wary. From an investment perspective, UK investors find their home market the most attractive, with 16% suggesting they would wish to invest there, followed by China (12%). The UK is far less attractive to overseas investors (4%). China and the US are the most attractive to overseas investors (16% and 15% respectively). These results notwithstanding, around half of investors say that emerging market investments are generally too risky for them. This is true for 52% of UK investors and 53% of overseas investors. The main reason for this for UK investors was a lack of understanding about emerging markets, but overseas investors concerns centred on political instability and corruption. MANAGING PORTFOLIOS In many respects, investors around the world have been making similar decisions about their portfolios. Over the last six months, investors have increased their exposure to cash and the stock market, and it is anticipated that this trend is set to continue in the short-term: Investors the world over have been embarking on a dash for cash with 22% of UK investors increasing their exposure in this area, along with 24% of overseas investors. They have also been enlarging their stock portfolios: 17% of UK investors have increased their exposure to the stock market, as have 20% of overseas investors. These trends look set to continue, with investors in all markets anticipating the stock market and cash to be their investments of choice over the next six months. Investors do not anticipate significant investment in emerging markets over the next six months, with only 8% of UK investors and 11% of overseas investors anticipating an increase in their exposure in these markets. SEEKING INVESTMENT ADVICE UK investors are much more likely to manage their portfolios entirely on their own without consulting financial advisers or seeking external expertise, with men in particular most likely to do so. Despite tough economic times, investors are still reliant on their gut instinct to inform their portfolio decisions and, as in previous surveys, UK investors are the least likely to use the services of a financial adviser: Just over half of UK investors manage their portfolios themselves (54%) and less than a third (32%) consult others before making investment decisions. By contrast, only 38% of overseas investors make changes to their portfolio without consulting others, with 48% consulting and 14% outsourcing all decisions to an adviser. UK investors are most influenced by their gut instinct and the media (46% and 37% respectively) when making investment decisions, with only 28% consulting a financial adviser. Overseas investors also rely more on their instinct than anything else, with 41% and 48% respectively suggesting it was a guiding force in their decision-making process. 6

7 EXECUTIVE SUMMARY ATTITUDES TO RISK On average, investors define themselves towards the risk-averse end of the scale. Female investors are noticeably more riskaverse than their male counterparts, but investors in general are less keen to take risks than they were six months ago: On a scale of 0 to 10, where 0 equals risk-averse and 10 equals extremely risk-seeking, the mean score for UK investors is 4.14 and for overseas investors Mexican investors, however, gave themselves a risk-seeking 5.9 score. Female investors are more risk-averse: male UK investors gave themselves a rating of 4.61 compared to 3.63 for females. Overseas, female investors gave themselves a 4.3 rating compared to the 5.03 male investors awarded themselves. UK investors have become less willing to take risks over the past six months, with 28% suggesting this is the case. It is a similar story abroad, with 27% of overseas investors less risk-averse than previously and only 19% more willing to take on risk. The most common reason for taking fewer risks is a lack of confidence in the markets cited by 37% of UK investors and 44% of overseas investors. INVESTMENT PERFORMANCE On balance, investors are satisfied with the performance of their investments, but across the world there is noticeable disappointment with the performance of savings: UK investors are broadly satisfied with their investments, with 40% satisfied and 31% dissatisfied. However, dissatisfaction with savings is rife: 52% of UK investors are concerned about their savings performance, and only 22% satisfied. Unsurprisingly, the main reason for this is fear of negative real interest rates, with 47% expecting inflation rates to be higher than the interest rate on their savings over the next six months. Similar to UK investors, 41% of overseas investors are happy with their investments against 32% dissatisfied. Dissatisfaction with savings accounts is high, with 45% dissatisfied compared to only 30% satisfied. American investors are particularly bullish about their investments, with 64% satisfied, but such satisfaction is not to be found in struggling Eurozone economies: 49% of Spanish investors are dissatisfied. Again, it is inflation driving disappointment with savings: 44% believe interest rates will be lower than inflation in the short-term. 7

8 ECONOMIC AND INVESTMENT OUTLOOK While the global economy remains fragile, there are signs that investors are becoming more optimistic in the medium and long-term. As in previous surveys, investors are looking at the global economy in quite different ways. The survey reveals that UK and European investors are more pessimistic about the economic outlook, particularly over the shortterm, compared to more bullish investors in the rest of the world. The survey also suggests that a divide is opening up between those in established markets, who tend to see emerging markets as riskier, and investors in emerging markets who are more optimistic. They are more positive about the possibility that economies particularly the Chinese economy will become even bigger contributors to global growth in the future. 8

9 1.1 ECONOMIC OUTLOOK Short-term optimism is in short supply among UK investors, particularly when contrasted with buoyant investors in many emerging markets. A similar gloom hangs over struggling Eurozone economies but, South African investors apart, most investors are optimistic for the short, medium and long-term outlook. UK INVESTORS Despite the growing signs of a genuine recovery in the UK, over the next six months, 40% of UK investors rate economic prospects in the UK negative, with just 15% rating them positive. The percentage of UK investors positive about the UK s economic prospects over the next 12 months increases to 26%, against just over a third (34%) rating them negative. Further out, UK investors are significantly more optimistic. Only 20% take a negative view of the UK s economic prospects over the next 3-5 years, with more than double that (43%) rating them positively. Over the next decade, 49% of UK investors are positive about economic prospects, versus just 13% negative. TABLE 1 How would you rate the outlook for the economy in the following time frames? Positive Negative UK Overseas UK Overseas Next 6 months 15% 30% 40% 28% Next 12 months 26% 38% 34% 24% 3-5 years 43% 48% 20% 18% 10 years or more 49% 50% 13% 12% 34% of Mexican investors believe recovery would come in the short-term. 9

10 OVERSEAS INVESTORS Generally speaking, overseas investors are noticeably more optimistic than UK investors over the short-term. 30% of overseas investors are positive about their own country s economic outlook over the next 6 months with 28% negative, whereas over the next 12 months 38% take a positive view and 24% rate the outlook as negative. Similar to UK investors, positive sentiment increases as investors look further out, with half of overseas investors positive about their own economy s prospects over the next 10 years. The results differ, however, between respondents from different countries. Over the next six months, 62% of French investors and 61% of Spanish investors are negative about their own country s prospects, though only 15% of German investors are negative. Investors in the UAE and Mexico are most bullish about prospects for their own country s economy over the next 12 months, with 67% and 51% respective rating the outlook positive. This contrasts with French investors, 54% of whom rank the outlook as negative over the same time period. Interestingly, South African investors are noticeably more negative about their prospects than when asked last year: those rating the outlook positive have fallen from 42% in 2012 to just 27% showing similar sentiments this year. South African investors are the only investors who take a negative view of their home economy over the medium-term. Chart 1 How would you rate the outlook for the economy over the next 12 months / next 3 5 years? Percentage difference between those rating negatively and positively France Spain South Africa Australia USA New Zealand Chart 2 How would you rate the outlook for the economy over the next 12 months / next 3 5 years? Percentage positive 60% 50% 40% 30% 20% UK Brazil Balance of positivity Switzerland Canada Germany Mexico UAE Next 12 months 3-5 years 10% 0% UAE Mexico Brazil Canada New Zealand Switzerland Australia USA Germany Positive UK Spain France Positive Overseas 10

11 1.2 INVESTMENT OUTLOOK Similar to views on the overall outlook, UK investors are the most pessimistic, though they do show signs of becoming more hopeful. Across the board, investors are most positive about the prospects for the stock market over the next six months. UK INVESTORS Over a third (34%) of UK investors are positive about the outlook for the stock market over the next six months, compared with 14% thinking it to be negative. This compares with much less positive sentiment last time UK investors were asked, when 23% were positive and a quarter rated the outlook negative. Investors are most negative about cash in the UK, with only 15% positive and 22% negative. UK investors are more confident in emerging markets, with 27% rating the outlook positively and only 12% negatively, and 21% of investors are positive about the short-term outlook in the US. Positivity is more evident in the UK market than in previous surveys up to 20% from 14% last year. This contrasts markedly with 7% of UK investors who are positive about the Eurozone over the next six months, against 43% taking a negative view. Despite this lack of confidence, it is an improvement over previous sentiment, which saw 50% taking the negative view. OVERSEAS INVESTORS Overseas investors are more confident, with 44% holding a positive outlook for their own country s stock markets over the next six months, compared to 14% negative. They are also more confident about government bonds in their own country, with 28% positive and 18% negative. Table 2 Do you think the outlook for the following asset classes and markets is positive, negative or neutral over the next six months? Positive Neutral Negative UK Overseas UK Overseas UK Overseas Stock market 34% 44% 36% 33% 14% 14% Government bonds 15% 28% 45% 40% 19% 18% Corporate bonds 17% 28% 45% 42% 16% 14% Commodities 19% 29% 43% 39% 14% 15% Property 28% 38% 40% 32% 16% 19% Cash 15% 26% 46% 45% 22% 18% Emerging markets 27% 31% 36% 36% 12% 13% UK 20% 15% 43% 40% 19% 20% Eurozone 7% 14% 31% 33% 43% 33% US 21% 23% 41% 35% 16% 20% Japan 21% 24% 41% 36% 14% 15% Chart 3 US Investors: Do you think the outlook for the following asset classes and markets is positive, negative or neutral over the next six months? Percentage of respondents 60% 50% 40% 30% 20% 10% 0% Stock market Property Corporate bonds Cash Commodities Emerging markets Govt bonds USA Japan UK Eurozone Positive Neutral Negative 11

12 Overseas investors are marginally more pessimistic about the UK economy than UK investors only 15% rate the outlook positive, against 20% negative. They are also pessimistic about the Eurozone, with a third (33%) rating the outlook negative against only 14% positive. Investors in the world s biggest economy, the US, are particularly positive about the outlook for property investments and their country s own stock market over the next six months. As Chart 3 on the previous page shows, they are noticeably more confident in prospects for the US economy than either the Eurozone or the UK. 1.3 GLOBAL RISKS Investors all around the world share a number of concerns about the world economy and risks to their investments, with varying levels of concern about US debt, the UK economy and economic slowdown in China and the emerging markets. That said, for all, the Eurozone crisis remains the most concerning global issue. UK INVESTORS Despite the UK exiting recession, the most worrying global issues amongst respondents that they believe could impact financial markets over the next six months are a slow recovery in the UK, with 67% of investors concerned against only 8% not concerned, and the on-going slowdown in the Eurozone, with 67% concerned and only 7% unconcerned. Fewer investors are worried about economic slowdown in emerging markets, with only 34% concerned about slowdown in China and 30% in other emerging markets. Chart 4 Thinking about global issues that could negatively impact the financial market over the next six months, how concerned are you about the following? Percentage of respondents 80% 70% 60% 50% 40% 30% 20% 10% 0% US Debt Economic slowdown in China Over the next 12 months, the biggest concerns that UK investors have about their investments specifically are economic growth in the UK (44%) and the strength or indeed weakness of the Pound (36%). Concerns about market volatility have fallen slightly in the past year, from 40% last year to 34% this year. Ashish Misra, Head of Investment Policy at Lloyds Bank Private Banking, said: It s no surprise that UK investors are growing restless about how the weak Pound is eroding the value of their investments as their buying power in world markets falls. However, despite the unfavourable exchange rates there are still some Economic slowdown in other emerging markets Falling commodity prices Weak economic recovery in the UK Eurozone debt and the outlook for the Euro UK Investors Concerned Overseas Investors Concerned potentially good investment prospects to be found abroad. For equity investors, we see some good opportunities in markets such as Japan, where fundamental prospects are on the rise despite the sharp sell-off in its stock market at the end of May, and the Japanese government s radical monetary policy regime is improving the long-term picture for investors in Japanese shares. Meanwhile, we also believe the Eurozone offers some good prospects with diminishing risk in the periphery, modest improvements in short-term growth potential and attractive equity valuations. 12

13 For investors reluctant to take the step of investing abroad, there are still opportunities at home to potentially benefit from the weak Pound. Over two-thirds of profits in the FTSE 100 come from overseas, and a weak Pound could make the FTSE 100 attractive to overseas investors, potentially supporting higher equity prices in the UK. OVERSEAS INVESTORS Overseas investors are unsurprisingly less concerned about weak economic growth in the UK, with only 38% concerned and nearly a quarter unconcerned (24%). Their biggest concern is Eurozone debt and the outlook for the Eurozone, with more than half (56%) concerned about the prospects for the area. Concerns about commodity prices are higher than for UK investors, with 40% concerned. US investors are particularly concerned about US debt, with more than threequarters (76%) citing worries about the deficit. Similarly, investors in France, Germany and Spain are concerned about Eurozone debt, with 65%, 62% and 68% of respective respondents worried. Concerns about commodity prices are particularly high in South Africa (59%), the UAE (54%), and Australia (52%), perhaps reflecting the importance of commodities to these economies. Over the next 12 months, overseas investors are similarly worried about a broad range of risks to their own investments. Their gravest concern is inflation (42%), though as Chart 5 shows this varies by country, with emerging markets such as Brazil (72%) and South Africa (66%) the most worried about high inflation. This is mirrored in concerns about rising interest rates, with Brazilian, Chart 5 Overseas investors: What would you say are the main concerns you have about your investments in the next 12 months? Percentage of respondents 80% 70% 60% 50% 40% 30% 20% 10% 0% Brazil South Africa Mexico UAE Mexican and South African investors again significantly more worried than investors elsewhere. Germany In addition, investors are significantly concerned by market volatility, the strength or weakness of local currencies, and local economic growth all of which see 40% of investors concerned. Interestingly, Mexican investors as well as being more concerned about inflation than growth are more concerned about uncertainty in the US economy than US investors themselves, with 45% of Mexican investors worried about temporary solutions to the US debt problems (the fiscal cliff ), against 35% of US investors. USA Australia Switzerland New Zealand Spain France Inflation Canada Economic Growth 13

14 1.4 VIEWS ON CHINA AND GOLD ECONOMIC GROWTH IN CHINA Although the recent slowdown in China has been widely reported, investors across the world hold varied opinions of the contribution of the Chinese economy to global growth. In particular, those in emerging markets expect China to contribute more than investors from established markets. As Chart 6 shows, UK investors take a mixed view of Chinese economic growth over the next 12 months, with 26% believing China will contribute more to global economic growth over the next year, and 25% thinking it will contribute relatively less than in the previous year. A further quarter believes Chinese growth s contribution to the global economy will remain the same. Chart 6 Which of the following do you think will apply to Chinese economic growth over the next 12 months? Percentage of respondents 45% 40% 30% 20% 10% 0% UK Overseas Contributing more to global growth than in the past 12 months Contributing the same to global growth than in the past 12 months Contributing less to global growth than in the past 12 months This is in marked contrast to overseas investors, 38% of whom believe the Chinese economy will contribute relatively more to global growth over the next 12 months against 23% who believe the opposite. Interestingly, these results vary greatly over the globe. Whereas 59% of Mexican respondents, 58% of Brazilian respondents, and 53% of South African respondents believe that China will contribute relatively more to global growth in the next year, only 18% of American investors think similarly, as shown in Chart 7. Chart 7 Which of the following do you think will apply to China s economic growth over the next 12 months? Percentage of respondents 70% 60% 50% 40% 30% 20% 10% 0% Mexico Brazil South Africa Germany UAE New Zealand Australia Spain Canada Switzerland France US Contributing more to global growth than in the past 12 months Contributing the same to global growth than in the past 12 months Contributing less to global growth than in the past 12 months 14

15 Lloyds Bank Private Banking Lloyds Bank Investor Private Outlook Banking Report Winter 2013 THE PRICE OF GOLD The price of gold has been on a general downward trend, reaching its lowest level in almost three years in June As Table 3 shows, however, investors across markets are all broadly confident that although gold prices will remain low in the medium term, they will recover. Table 3 How long do you think the fall in gold prices will last? 44% Gold prices will remain low in the medium term, then recover Perhaps reflecting a general lack of economic confidence, French and Spanish investors were the most negative about long-term gold prices, with 18% and 19% respectively believing prices will remain low in the long-term. Most confident that gold prices would recover were Mexican investors, only 5% of who believe gold prices would remain low in the long-term and 34% believing recovery would come in the short-term. 23% It s only a minor blip gold prices will recover in the short-term UK 8% Gold prices will remain low for the long-term 11% Gold prices will remain low for the long-term 51% Gold prices will remain low in the medium term, then recover OVERSEAS 22% It s only a minor blip gold prices will recover in the short-term 15

16 INVESTMENT STRATEGIES Investors disagree slightly about the most attractive world markets, with UK investors far more confident in the UK than investors elsewhere in the world. Around half still believe that emerging markets present too risky a proposition. Over the last six months, investors have tended to increase their exposure to cash and the stock market, with government bonds out of favour. Enthusiasm about property is mixed, with Mexican investors far keener than their US counterparts. UK investors are much less likely to seek professional financial advice than investors in other countries, although all investors rely primarily on their gut instinct and the media to inform their investment decisions. Female investors are universally more risk-averse than their male counterparts, although investors in most countries have tended to become less willing to take risks over the last six months. 16

17 2.1 GLOBAL MARKETS Investors across the world are not necessarily in agreement about the most attractive world markets from an investment perspective, with views of markets such as the UK, China and the US varying widely. However, investors are more of one mind with regards to the biggest risks in the world economy, with all investors most wary of the Eurozone and Russia. UK INVESTORS UK investors believe that China and Brazil offer the highest potential returns for investors, with both picked as the market that will deliver the highest potential returns by 14% of investors. They are also relatively bullish about the UK market, with 11% of investors believing their home market will deliver the highest potential returns on investments. Chart 8 Generally, which of the following world financial markets do you think has the highest risks for investors? Percentage of respondents 30% 25% 20% 15% 10% 5% 0% Eurozone Russia China UK Brazil USA India Japan UK Overseas The Eurozone is seen as the riskiest market by 2% of UK investors. This is a fall from previous surveys, including January 2012 in which 46% of investors felt the Eurozone to be the riskiest market, suggesting that investors may be responding to the stabilisation of the Eurozone following European Central Bank s monetary policy action. Interestingly, UK investors see minimal potential returns in Russia, with only 4% expecting it to deliver the most significant potential returns, against 14% who believe it to be the riskiest market for investors. Overall, UK investors opt for their home market, although as in previous years significant proportions are still attracted to the high growth economies. The top three markets in which UK respondents would wish to invest are the UK (16%), China (12%) and Brazil (11%). 17

18 Investors remain nervous about the Eurozone and its volatility due to a string of bad news stories in the last couple of years. OVERSEAS INVESTORS Overseas investors see the Chinese market as offering the highest potential returns (17%), though enthusiasm has waned slightly from the previous survey (19%). China is followed by the US and Brazil (both 12%). The Eurozone most concerns investors, with 26% of overseas investors citing it as the riskiest market. Enthusiasm to invest in the UK is noticeably lacking in the rest of the world compared to UK investors just 4% of overseas investors think the UK represents an attractive place to invest, against 16% of UK investors. By contrast, investors overseas find the US a far more attractive market to invest in (15%) than UK investors (9%). Ashish Misra, Head of Investment Policy at Lloyds Bank Private Banking, said: Investors remain nervous about the Eurozone and its volatility due to a string of bad news stories in the last couple of years. However our outlook remains cautiously constructive towards Eurozone shares, and we have recently increased our client portfolios investments in this asset class. Our view on European equities is based on a steadily improving risk-reward scenario. We have seen tentative signs of improving investor sentiment in the Eurozone, while sovereign fiscal concerns and other major macro-economic worries are gradually starting to dissipate. Valuations of Eurozone companies remain reasonable, while profit forecasts have stabilised encouragingly. It should also be taken into account that investment in the Eurozone corporate sector provides exposure to more than just the Eurozone economy, as the index includes a host of high-quality global companies that aim to benefit from opportunities all over the world. Chart 9 Assuming you were able to invest in them, which of the following world financial markets do you think is the most attractive to you from an investment perspective? Percentage of respondents 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% UK China Brazil 17% of overseas investors see the Chinese market as offering the highest potential returns. India USA Japan Russia Eurozone UK Investors Overseas Investors 18

19 EMERGING MARKETS Amongst UK investors, there has been a small fall in the number of investors feeling that emerging markets are too risky, from 55% in July 2012 to 52% this year. Emerging markets present too much of a risk for 53% of overseas investors. UK investors in particular are worried about their lack of understanding of emerging markets, while overseas investors evidently feel more informed about the risks and potential rewards of emerging markets. The main concerns for overseas investors with regards to emerging markets are political instability and corruption. Chart 10 To what extent do you agree with the following statement: Emerging market investments are generally too risky for me? Percentage of respondents 40% 35% 30% 25% 20% 15% 10% 5% 0% Strongly agree Somewhat agree Don t agree or disagree Somewhat disagree Strongly disagree UK Overseas Chart 11 What were the main reasons for believing emerging markets are too risky? 60% 50% Percentage of respondents 40% 30% 20% 10% 0% Lack of understanding about emerging markets Politically instability Corruption Currency risk UK Overseas 19

20 2.2 MANAGING PORTFOLIOS In many respects, investors around the world have been making similar decisions about their portfolios. Over the last six months, investors have increased their exposure to the stock market and to cash, and this trend is anticipated to continue in the short-term. UK INVESTORS The most striking trend of the past six months has been the dash for cash, with 22% of UK investors increasing their exposure in this area, compared to 14% decreasing their exposure. Optimism in the stock market has been evident, with 17% of UK investors increasing their exposure in this area against 9% deleveraging. Bonds, however, have been less popular: only 5% of investors have increased their exposure to either government or corporate bonds, against 6% and 9% respectively who have lessened their exposure. UK investors have been pulling out of the Eurozone, with 12% decreasing their exposure in the market against only 5% increasing. Over the next six months, UK investors expect to put more money into the stock market (16% planning to increase against 7% planning to pull out) and to continue the dash for cash (18% increasing against 12% anticipating decreased exposure). They expect to continue to reduce their exposure to the Eurozone, and enthusiasm for emerging markets has waned: at the start of 2012, 20% of investors said they planned to increase their exposure to emerging markets, but that figure has fallen to just 8%. OVERSEAS INVESTORS Investors beyond the UK are also engaged in the dash for cash, with 24% of investors increasing their exposure compared to 15% pulling out. Investors have also been Table 4 In the last six months, have you increased or decreased your exposure to the following asset classes and markets? investing in the stock market over the last six months: 20% have increased their exposure, against 12% decreasing. Investors have been more bullish about property than their UK counterparts, with 14% increasing their exposure in this asset class and only 9% decreasing. The next six months are likely to see similar results, with investors particularly enthusiastic about cash assets (29% planning to increase), the stock market (26%) and property (17%). Enthusiasm about property, though, is not universal: only 4% of American investors plan to increase their exposure to property over the next six months, compared to 42% in Mexico, reflecting the relative buoyancy of the two countries property markets. In keeping with the general negativity throughout the survey about the current state and future prospects of the Eurozone, 15% of investors have decreased their exposure in this market with only 7% increasing their exposure over the last Increased Decreased UK Overseas UK Overseas Stock Market 17% 20% 9% 12% Government Bonds 5% 8% 6% 12% Corporate Bonds 5% 7% 9% 11% Commodities 4% 12% 8% 9% Property 8% 14% 7% 9% Cash 22% 24% 14% 15% Emerging markets 8% 11% 7% 10% UK 9% 6% 8% 11% Eurozone 5% 7% 12% 15% US 6% 9% 8% 11% Japan 5% 7% 8% 10% six months. However, pessimism may be close to bottoming out in the next two quarters, 9% of investors plan to increase their exposure in the Eurozone against 10% pulling out. Investors are on balance enthusiastic about both emerging markets and the US, with 11% and 12% respectively anticipating increasing their exposure in those markets, against 6% and 8% expecting to pull out to some degree. Ashish Misra, Head of Investment Policy at Lloyds Bank Private Banking, commented: Investors have recognised the improving outlook for global equities, and are starting to adjust their portfolios accordingly. While we would caution against over-exposure to any one asset class, our general view is that investors are heading in the right direction by tilting their portfolios towards the stock market and away from bonds and commodities at this time. June s price falls after the Federal Reserve s announcement of Quantitative 20

21 Prices have recovered in July, and Lloyds Bank Private Banking s current view is that equities will continue to outperform fixed income or commodities. Easing tapering, likely caused some short-term negative sentiment. However, this was an orderly correction that we view as a natural, even desirable event, allowing markets to digest and consolidate recent gains and help build a durable base for potential future increases. Prices have recovered in July, and our current view is that equities will continue to outperform fixed income or commodities. This is due to an improving macro-economic backdrop, with rising indicators in manufacturing activity, labour markets, house prices and general financial conditions. As long as these conditions continue to prevail, we believe good relative valuations will continue to favour equities. 2.3 SEEKING INVESTMENT ADVICE UK investors are much more likely to manage their portfolios entirely on their own without consulting financial advisers or seeking external expertise, with men in particular most likely to do so. Despite tough economic times, investors are still reliant on their gut instinct to inform their portfolio decisions and, as in previous surveys, UK investors are the least likely to use the services of a financial adviser. UK INVESTORS Just over half of UK investors (54%) manage their portfolio themselves without external advice, a slight increase on last year. Similarly, there has been a slight decrease in the number of investors consulting others before making any changes, to 32%. Investors have outsourced all portfolio changes to advisers in 15% of cases. Women are more likely to consult others before making decisions 35% to 29% of men but that is still a lower figure than investors anywhere else in the world. Chart 12 Which of the following best describes you? Percentage of respondents 60% 50% 40% 30% 20% 10% 0% UK investors Amongst UK investors, 46% rely on their own gut instinct and 37% on the media/ internet to inform their investment decisions. Only 28% rely on a financial adviser, the same result as last year, and only 17% consult their bank or building society manager. Overseas investors OVERSEAS INVESTORS Overseas investors are less likely than UK investors to rely solely on themselves to manage their investments 48% make changes after consulting others, 38% manage their portfolio without assistance, and 14% have handed off total responsibility to an adviser. Despite troubles in the Eurozone, German investors are most likely to manage their portfolio alone (61%) with French investors I like to manage my investment portfolio myself without anyone s assistance I make changes to my portfolio myself, but would consult others (eg. financial advisers) prior to making any changes I entrust my adviser(s) with all portfolio changes also independently-minded (51%). By contrast, 72% of Mexican investors and 63% of South African investors are most likely to consult others beforehand. North American investors are most likely to entrust an adviser to make all changes, with a quarter of Canadians and a fifth of Americans choosing this route for their portfolio management. Though they are more likely to consult others on investment decisions than UK investors, 41% of overseas investors still rely on their gut feeling and 34% on the media/ internet to inform their decisions, against 32% who consult financial advisers. This hides outliers: though they share a border, 47% of Americans trust in their gut feeling, against only 31% of Canadians who rely on the same for their investment decisions. 21

22 2.4 ATTITUDES TO RISK On average, investors are unwilling to take significant risks, defining themselves as towards the risk-averse end of the scale as shown in Chart 13. Female investors are more risk-averse than their male counterparts. Investors have become noticeably less keen to take risks over the last six months. Chart 13 How would you describe your current attitude towards risk, regarding your investments? Please rate yourself on a scale of 0-10, where 0 means you are extremely risk averse and 10 means you are extremely willing to take risks? 6 UK INVESTORS On a scale of 0 to 10, where 0 equals extremely risk-averse and 10 equals extremely risk-seeking, the mean score for UK investors is This is a slight fall since July 2012, in which investors gave themselves a mean score of 4.31, and previous surveys in January 2012 (4.41) and July 2011 (4.40). Female investors are more risk-averse, with a mean score of 3.63, compared to 4.61 for male investors. This also continues a trend noticeable in previous surveys. Mean scores of attitude to risk UK Overseas Male Female Combined mean score of both male and female UK investors tend to have become less willing to take risks in the previous six months. Only 14% are more willing to take more risks than they were six months ago, but double that 28% suggest they are now more risk-averse. Of those who said they were less willing to take risks, the two main considerations were a lack of confidence in the market and, perhaps in light of continued bad news in the economy, a desire for more financial security for investors families, both cited by 37% of respondents. Nearly a fifth (19%) suggested this change in attitude to risk was due to a lack of confidence in the political steps being taken to assist economic recovery. OVERSEAS INVESTORS Overseas investors place themselves on the risk-averse side of the scale, with a mean score of This is an increase from July 2012, in which investors gave themselves a mean score of Like UK investors, males are more likely to take risks than female investors, giving themselves a 5.03 rating compared to 4.30 for women. As in July 2012, Mexican investors are most willing to take on risk (5.90). German and American investors (5.02 and 5.00 respectively), also more willing to take risk than most, are contrasted with risk-averse Swiss (3.57) and New Zealander (3.83) investors. On balance, overseas investors are becoming more risk-averse, but to a lesser degree than UK counterparts with 19% suggesting they are more willing to take risks compared to six months ago and 27% less willing to do so. Bucking this overall trend, though, investors in the UAE, Mexico, Australia and the US are now more willing to take risks than they were a year ago to varying degrees. Spanish investors have become particularly risk-averse, with only 15% more willing to take on risk compared to 45% becoming warier of risk. Of those becoming less risk-seeking, like UK investors the top concern is a lack of confidence in the markets (44%). However, 38% of investors cite a lack of confidence in the political steps being taken to assist the economy as a reason to become more risk-averse. This is particularly noticeable in France, with 52% of these investors concerned about the political climate. 22

23 Lloyds Bank Private Banking Lloyds Bank Investor Private Outlook Banking Report Winter 2013 INVESTMENT PERFORMANCE Investors have mixed views about the performance of their savings and investments. On balance, they are satisfied with the performance of their investments, but across the world investors are disappointed about the performance of their savings with UK investors particularly unimpressed. 23

24 UK INVESTORS Two-fifths (40%) of UK investors are satisfied with the performance of their investments, compared with 31% dissatisfied. This is a marked change from 2012, in which 39% were dissatisfied against only 31% satisfied. They remain less happy about their savings, with 22% satisfied and more than half (52%) concerned about their savings performance. As in previous years, negative real interest rates are the likely cause of dissatisfaction with returns on savings. Nearly half of UK investors (47%) with a savings account think that inflation rates will be higher than the interest rate on their savings over the next six months, a small increase on last year when 45% predicted the same. This would appear to call an end to a downward trend noticed previously, in which UK investors became gradually less concerned about inflation, as seen in Chart 15 on the following page. Whether the new Bank of England Governor Mark Carney s forward guidance, which will keep interest rates low for the foreseeable future, will further dissatisfy savers in the UK will be interesting to watch. Chart 14 How satisfied are you currently with the performance of your savings and investments? Percentage of respondents 30% 25% 20% 15% 10% 5% 0% Eurozone Russia China UK Brazil USA Satisfied Dissatisfied 24

25 OVERSEAS INVESTORS Similar to UK investors, 41% of overseas investors are happy with their investments against 32% dissatisfied. Dissatisfaction with savings accounts is high, with 45% dissatisfied compared to only 30% satisfied. American investors are particularly bullish about the performance of their investments, with 64% satisfied against only 8% dissatisfied. Australian investors are also pleased with their investments: more than half (52%) are satisfied compared with 22% dissatisfied. Such satisfaction is not to be found in much of the Eurozone, however, with 49% of Spanish investors dissatisfied with their investments against only 25% satisfied. Similarly, German and French investors overall are dissatisfied with their investments. Bucking the overall trend, savers in the UAE and in Canada are on balance satisfied with their savings, with 41% and 37% respectively satisfied, against 37% and 31% dissatisfied. Brazilian savers are particularly dispirited, with 61% citing dissatisfaction and only 16% satisfaction. Chart 15 Percentage of UK investors believing inflation will be higher than interest rates on saving accounts? Percentage of respondents 80% 70% 60% 50% 40% 30% 20% 10% 0% July 2011 *Dates when respondents were surveyed January 2012 July 2012 January 2013 July 2013 Chart 16 Are you currently satisfied with the performance of your investments and savings? 70% Date* Inflation worries are evident across a number of markets, with 44% expecting inflation to be higher than interest rates over the next six months, though this is a slight fall from 49% who said the same in July In particular, 72% of German investors expect a negative real interest rate in the short-term. Percentage satisfied 60% 50% 40% 30% 20% 10% 0% USA Australia Canada UAE Mexico South Africa New Zealand France Germany Switzerland Brazil Spain Investments Savings 25

26 CONCLUSIONS There are a number of key conclusions that can be drawn from this survey of UK and overseas investors. SENTIMENT UK and European investors tend to be less optimistic about economic and investment prospects than investors living further afield. That said, investors across the world barring South African investors are optimistic about economic prospects over the medium 3-5 year period. RISK AND REWARD Chinese and Brazilian markets are broadly seen as attractive markets, though UK investors stand alone in favouring the UK. The biggest investment risk is the Eurozone, but investors the world over are unsure whether the potential returns in Russia are worth the risk. DASH FOR CASH Investors have been particularly keen on cash and the stock market over the past six months, and this trend is expected to continue. Government bonds are seen as deeply unpopular by investors right across the world. DECISION MAKING UK investors are far less likely than overseas investors to consult with an expert before making portfolio changes, though investors the world over are guilty of allowing their gut instinct to drive the majority of investment decisions. CHINA AND EMERGING MARKETS Emerging markets are still seen as too risky by around half of investors, with concern driven by a perceived lack of understanding and a fear of political instability or corruption. Those in emerging markets are more likely to expect Chinese growth to continue, while US investors are in particular unlikely to expect China to contribute more to global growth than previously. RISK Men are noticeably more risk-seeking than women, and are also less likely to consult others on key investment decisions. Most investors are more risk-averse than six months ago, with concerns over the volatility of world markets. UK INVESTORS Investors in the UK, though pessimistic about the short-term, believe the outlook for the UK economy in the medium and long-term is positive, and as a result see the UK as a far more attractive market than investors overseas. They do, though, remain concerned about a slow recovery in the UK and are wary of the Eurozone s ongoing struggles across the water. Inflation, though not as much of a concern as in previous surveys, is still very much on investors radar. As the global economic uncertainty continues and markets remain volatile, investors are looking to the perceived safe haven of cash. Too often, investors are making changes to their investments without seeking external expertise, despite admitting that they lack knowledge of emerging markets and as a result see them as too risky. Now more than ever, good professional advice is needed to help make sense of the ups and downs of the global economy. NOTE TO INVESTORS Any views expressed by Lloyds Bank Private Banking within this report are our current in house views as at 2 September 2013 and should not be relied upon as fact. In particular, no representation or warranty as to the accuracy of any financial information set out or as to the potential for achievement or reasonableness of any forecasts, projections, prospects or returns is made. The use of estimated /forecast figures in various sections of this document is no guarantee of future performance and /or accuracy of opinions. All investments contain an element of risk. Values can fall as well as rise and there is no guarantee that your investment will be worth as much as you put in it at any one time. Please note past performance is not a guide to future performance or returns. 26

27 METHODOLOGY AND SOURCES This half-yearly survey is conducted amongst UK and overseas stock market investors to provide clear insights into financial attitudes and behaviour and to allow changes over time to be tracked on a bi-annual basis. This wave was the 11th time the survey was conducted. These results are based on an independent online survey conducted by ICM and Freshminds on behalf of Lloyds Bank Private Banking Limited. This wave was the third time overseas investors were surveyed in addition to UK investors. A sample of 1,000 UK investors and 1,000 foreign nationals aged 18+, who currently hold / held in the past 6 months, stock market investments (including gilts / bonds), were surveyed between 24th August and 10th September The countries sampled were: Australia (n= 83), Brazil (n= 83), Canada (n= 83), France (n= 84), Germany (n= 85), Mexico (n= 83), New Zealand (n= 83), South Africa (n= 83), Spain (n= 85), Switzerland (n= 84), UAE (n= 81) and USA (n= 83). Previous waves fieldwork took place at the following times (where n = number of respondents): Wave 1 (Canvass Opinion): 30th Oct 7th Nov 2007 (n=820) Wave 2: 4th 10th July 2008 (n=804) Wave 3: 5th 10th December 2008 (n=836) Wave 4: 19th 25th June 2009 (n=828) Wave 5: 14th 18th December 2009 (n=805) Wave 6: 25th June 5th July 2010 (n=820) Wave 7: 10th 20th December 2010 (n=1,024)* Wave 8: 13th 20th July 2011 (n=1,000) Wave 9: 12th 20th January 2012 (n=1,000) The criteria to define the sample are those who hold / held any one of the following types of investments: Stocks and Shares Non-cash ISA (Maxi ISA) Investment Trusts (excluding ISAs) Unit Trust / OEIC (excluding PEPs / ISAs) Guaranteed Stock Market Bonds (GSMB)* Corporate bonds (including ISA)* Investment bond* Gilts / gilt funds* Other government bond funds* Wave 10: 24th August 10th September 2013 (n=1,000 UK, 1,001 overseas, 716 expat) *Note: starting with Wave 7, the UK sample size was increased to at least 1,000 and the sample definition was broadened to include those who had gilt or bond investments. To ensure consistency between waves, the relative proportions of these types of investors were monitored, along with gender, age and region, to avoid the possibility of a skewed sample. 27

28 Please go to lloydsbank.com/privatebanking or call us on If you d like this in another format such as large print, Braille or audio please ask in branch. If you have a hearing or speech impairment you can contact us using Text Relay (previously Typetalk) or Textphone on (lines are open 24 hours a day, seven days a week). Lloyds Bank Private Banking Limited. Registered office: 25 Gresham Street, London, EC2V 7HN. Registered in England and Wales, no Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under number