Articles / Rubric: Companies and Markets

Rose-Colored Glasses Back in Style
July - August 2013 | Companies and Markets

The global economy and financial markets are once again receiving optimistic forecasts. Although the main problems that caused the crisis haven’t been solved, experts are looking at the future with a sigh of relief. At the same time, developed and developing countries are wary of one another and making bets on various mechanisms for ensuring global economic growth.

The annual review of global market sentiment by the Chartered Financial Analyst Institute demonstrates the cautious optimism of participants in predicting the future of financial markets. But experts worry that the biggest issues that contributed to the international economic crisis and market declines have yet to be resolved. The CFA study reflects the views of experts in the global financial services industry and helps investors to calculate all of the risks and opportunities in the short term.

On the question of whether the global economy will expand, contract, or stay the same, 40% of respondents answered that it will expand, while 20% believe that it will contract even further. Many noted that prospects still aren’t visible because of a combination of several factors, including the continuing European debt crisis, the expected slowdown of Chinese economic growth, and the approach of worsening budget deficits in the U.S. However, comparing results of this survey with last year’s, experts’ expectations for 2013 are more optimistic. In 2012, only 34% felt there would be global expansion, whereas 29% expected a recession.

The most optimistic forecasts for economic growth in 2013 were in the developed economies. Developing countries are betting on domestic economic growth while most developed economies are expecting global economic growth in 2013. The most optimistic forecasts came from France: 61% of respondents here think that the global economy will expand, whereas in China this opinion is only shared by 21%.

Given the complications of the European debt crisis, a majority of CFA members (36%) think that an increased focus on resolving the Eurozone crisis would have the biggest positive impact on global capital markets. This opinion is supported by experts from Europe itself.

26% think that increased growth rates among emerging economies could have a positive impact on economic growth. This option was suggested by research participants from South Africa (37%), India (35%), and Brazil (33%).

A minority (20%) said that an increased focus on solutions to create more jobs would improve the figures. The only country where the largest number of members chose this path (33%) was Taiwan.

Members’ opinions about Eurozone crisis forecasts were divided into three groups. 23% think that it will ease, while slightly more think it will worsen (35%), but the majority feels that the Eurozone crisis will stay the same (42%). European countries were most optimistic in their forecasts: Spain (53%), Italy (46%), Germany (43%), and France (43%). Less optimistic in their valuations of the future of the Euro crisis were: Russia (45%), the United Arab Emirates (41%), the United States and Singapore (both 39%), and South Africa (38%).

Meanwhile, the biggest risks to global capital markets in 2013 are related to the European debt crisis (according to 37% of respondents). Somewhat fewer members (31%) fear weak economic conditions

Although CFA members in most European countries are confident that the Eurozone debt crisis is the biggest risk for their domestic markets, they aren’t very worried about its effects on the global economy. But respondents from Brazil (59%) and the United Arab Emirates (54%) are very concerned about the risks associated with the European debt crisis’s impact on global capital markets. And China is more worried about the risks associated with weak economic conditions (48%) than with risks associated with the European debt crisis (28%).

Local Growth Outside of Europe
Switching from global markets to local ones, the major problems are associated with other risks. 38% think that the biggest threat to local markets will be weak economic conditions in developed countries. 18% think the biggest risk is political instability in developing economies. And just 17% worry about the European debt crisis.

Almost half of those surveyed globally (45%) think that in 2013, their domestic economies will expand. Members had similar expectations in 2012. But members in developing economies are markedly more optimistic than those in advanced economies (56% versus 43%, respectively). Members in Brazil, the UAE, and India are especially optimistic about domestic economic growth: 87%, 73%, and 69%, respectively, expect their domestic economies to grow in 2013.

At the same time, just 28% of respondents from Europe expect their domestic economies to expand. These fears are mainly attributed to the European debt crisis. Whereas European members think that the Eurozone crisis has less effect on the global economy, 44% worry that it will affect their local markets. The most optimistic among the European countries was Germany, with 42% of respondents sure of an expanding economy.

Weak economic conditions also concerned the advance economies. 40% of members said this was one of the most dangerous factors for European domestic markets, while in developing economies it was only 25%.

In these countries, members are more concerned with political instability. Emerging economies don’t need to worry about weak economic conditions, since they are unlikely. Among all of the countries, South Africa (65%) and India (60%) are most concerned with political instability, followed by Italy (47%) and Japan (43%).

Start Small
Despite some optimism in short-term prospects, the long-term problems that brought us into this financial crisis should be settled, the effects of which are still being felt. Only this can lead to long-term progress, strengthened markets, and economic well-being. In particular, 56% of members noted the continued lack of a culture of ethics in financial companies. It is this shortcoming that contributes to mistrust in the financial industry from experts, investors, and even the population. That’s why solving short-term problems shouldn’t be so much about government actions and the use of various mechanisms in the markets, as with the introduction of an ethical culture into financial companies. 

Text: Valeriya Khamrayeva

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