Global investment professionals' survey shows fears of mispricing of assets and rising misconduct
Analysts are split on how the global economy will recover from the pandemic crisis, with some expecting a V-shaped rebound and other more cautiously calling for a U shape.
But a global survey of investment professionals found a sizeable share is expecting recovery to resemble something dear to many Canadians, a hockey stick.
The CFA Institute poll found that 44% of respondents believe there will be some level of stagnation over the next 2-3 years until signs of recovery are visible, with little evidence of variation among members across the Americas, EMEA, and Asia Pacific regions.
The next largest group (35%) are calling for a U-shaped recovery with 3-5 years of moderate pick up before clearer signs of acceleration.
“The lockdown has had a massive effect on the markets and in terms of the recovery, our members are more cautious on the form it will take compared with others in the financial services industry who have been more bullish,” said Margaret Franklin, CFA, President and CEO, CFA Institute. “When it comes to the effect of volatility on their strategic asset allocation, a clear majority of respondents have reported their firms are either adopting a ‘wait and see’ approach with their portfolios or have made no changes.”
The report shows that 96% of respondents are concerned of mispricing of specific assets, driven by two underlying factors: liquidity dislocation (38%), of greatest concern to respondents in Asia, and distortion of natural market pricing due to government intervention (36%), of greatest concern to respondents in North America and Europe.
For investment-grade corporate bonds in developed markets, 76% believe liquidity is down.
At a human level, respondents are predicting large-scale bankruptcies for the industry (39% frequency of responses) and also an acceleration of automation to reduce costs (38%).
Consolidation is also considered likely to increase and 54% of respondents see no change in their firm’s hiring plans, 36% report a hiring freeze, with only 9% reporting downsizing.
Unethical behaviour to increase
The survey’s respondents are expecting to see an increase in unethical behaviour within the investment management industry with the greatest risk in less developed markets.
“The pressure which the current crisis poses to professionals in terms of their professional conduct is also of concern; 45% of respondents believe that it is likely the current crisis will result in unethical actions in the investment management industry,” said Franklin. “Of note, a majority thought that regulation of market conduct should not be relaxed in this crisis, which is a positive reflection of the ethical professionalism of the membership.”
- 75% believe that companies that receive emergency support during the crisis should not pay dividends or compensate executives with bonuses
- A ban on short-selling should not be considered (83%)
- A review of ETFs activity during the crisis should be initiated to determine the nature of their potential systemic impact (84%)
- Regulators should focus on investor education about the risk of investor fraud in times of crisis (94%) as well as continued market surveillance (82%)
- Regulators should not consider imposing security market holidays (82%) or temporarily permitting companies to delay reporting on changes in their financial conditions (73%)
- 42% respondents believe it is unlikely that the crisis will reverse the steady shift into passive investments.