South African investors confident about domestic equity

Ms. Jo-Anne Bailey, Country Manager, South Africa, Franklin Templeton Investments.

Investor optimism dominates in fifth annual global investor sentiment survey by Franklin Templeton - South African investors confident about domestic equity and anticipate increased investing in equities over the long-term.

• Retirement and buying a new home among top investment goals
• State of the local economy, unemployment and inflation are amongst the top concerns for South African investors.
• South African investors (83 percent) are highly optimistic about reaching their financial goals.
• Past performance (30 percent) and suggestions by an advisor (26 percent) are the top influencers when selecting a unit trust.

In its fifth year canvassing investors across the globe, the 2015 Franklin Templeton Global Investor Sentiment Survey polled over 11,500 investors in 23 countries across the Americas, Africa, Asia Pacific and Europe. One of the broadest surveys of its kind, respondents shared their views and current attitudes towards investing and their expectations for 2015 and the decade ahead.

According to the survey, investors in South Africa (53 percent) think the domestic stock market will rise in 2015 and South African investors remain optimistic about the coming year. Investors think that best equity opportunities in 2015 and over the next 10 years will be in US and Canada, South Africa and Asia. The percentage of respondents who believe that best equity returns will be from the local market over the next 10 years have marginally increased compared to 2014 findings. The survey also shows that the South African Investors believe real estate, precious metals and stocks will be among the top performing asset classes in 2015 and over the next 10 years.

Ms. Jo-Anne Bailey, Country Manager, South Africa, Franklin Templeton Investments, said, “The survey clearly shows the growing optimism in South Africa. Despite confidence in local markets, it is interesting to note that many people are considering increasing their global exposure over the coming years. We believe this is a positive trend as it helps South African investors diversify their portfolio across countries and asset classes. A global asset manager like Franklin Templeton with offerings across the globe and with more than 65 years of track record across market cycles is uniquely positioned to serve the growing need for offshore investing.”

“On the other hand, it is very clear that the industry needs to do a better job of increasing awareness and acceptance of equities and fixed income as core asset classes. There continues to be a strong preference for physical assets such as gold and real estate that needs to change. Financial savings need to be encouraged through a mix of policy incentives and increased awareness. This will not only benefit the average investor, but also create long term, productive savings pool essential for economic growth,” added Bailey

“Many markets around the world have enjoyed strong performance over the past several years,” said Ed Perks, CIO of the Franklin Equity Group. “Investors are optimistic, but that may not be based on a solid understanding of the markets’ performance. It’s more critical now than ever to really understand the underlying value of individual companies, industries and countries as we are likely to encounter some rough patches ahead.”

Globally, more than half (58 percent) of global investors surveyed believe their local stock market will post positive returns in 2015. Regionally, the U.S. and Canada (64 percent) are the most optimistic about future local stock market returns, closely followed by Europe (62 percent) and APAC (56 percent). Latin American investors are the least likely to expect positive local stock market performance (46 percent), with those in the region who believe the stock market will decline doubling since last year.

When it comes to perceptions of past performance, the survey has consistently shown that investor perception often diverges from reality. This year’s survey showed more than half (55 percent) of investors believe their local stock market was up last year. When looking at where global stock markets ended the year, 60 percent missed the mark. Only eight of 23[i] markets surveyed (35 percent) experienced positive performance in 2014. In South Arica 50 percent believe the stock market was up last year, when in fact the JSE FTSE All Share Index returned 7.6 percent[ii].

Stocks remain in favor

For the second year in a row, stocks continue to top the list of investors’ most favored asset classes globally. Fifty-seven percent of this year’s survey respondents expect stocks to be among the top performing asset classes in 2015. Real estate (52 percent) and precious metals (39 percent) round off the top three.

There has been little movement in the top three over the past three years, which also holds true when looking at a longer investment horizon. Global investors continue to rank stocks (55 percent), real estate (55 percent) and precious metals (42 percent) as the top three performing asset classes over the next 10 years. Meanwhile the survey also shows that South African Investors believe that Property, Precious Metals and Stocks will be among the top performing asset classes in 2015 and over the next 10 years.

When it comes to concerns, South African investors are most concerned about the health of the local economy, unemployment and inflation. While the state of the South African economy is the primary concern, the sustained weakness of the rand has prompted worries about a rising inflationary outlook.

Emerging and developed markets don’t see eye to eye

Emerging and developed market investors don’t see eye to eye when it comes to several key risk factors. Those who live in emerging market countries are more than twice as likely as those who live in developed markets to be concerned about inflation, and nearly twice as likely to be concerned about rising interest rates and the effects of falling oil prices. Conversely, developed market investors are nearly twice as likely to express concern over the Eurozone debt situation.

Risk management is key

Stocks are clearly viewed as providing the best potential returns both in the near term and long-term; however, investors also view the asset class to be the riskiest in 2015 and over the next 10 years. Thirty-five percent of global investors chose stocks as the riskiest asset class, followed closely by the Euro (34 percent), and non-metal commodities (32 percent) for 2015. These top three hold steady looking out 10 years as well, but alternative investments moves into a three-way tie behind stocks among the riskiest asset classes looking out to 2025.

Given global investors’ views on the riskiest asset classes, an overwhelming number of global investors (94 percent) ranked the importance of risk management expertise as somewhat to very important.

“Views of what constitutes risk vary within the industry, and it’s important for investors to have a clear understanding of what risk means to them and how it impacts their portfolios,” added Bailey. “In today’s volatile, low interest rate environment, many investors are looking for actively managed investment solutions from managers employing strategies that can help reduce volatility in unpredictable markets while seeking to provide attractive risk-adjusted returns.”

Security, quality of life influence investing goals

Globally investors ranked retirement, planning a vacation, and being prepared for emergencies as their top three investment goals in the year ahead. Retirement is the number one goal for U.S./Canada investors with 73 percent choosing it as a top priority. Retirement is also the number one priority for APAC investors with 43 percent indicating it is a top investment goal. Meanwhile, investors in Latin America are most focused on saving for the purchase of a new home (50 percent) and investing in/starting a business (48 percent), while European investors place the highest priority on planning a vacation (49 percent). In terms of top investment goals for 2015, 61 percent of South African investors cite planning for retirement as their main investment goal for the year. This is followed by purchasing a new home (37 percent) and emergencies (34 percent).Survey findings from this year also indicate that past performance (30 percent) and suggestions by an advisor are the top influencers when selecting a unit trust.

Methodology

The Franklin Templeton Global Investor Sentiment Survey www.franklintempleton.co.za/investorsurvey, conducted by ORC International, included responses from 11,508 individuals in 23 countries: Brazil, Chile and Mexico in Latin America; Australia, China, Hong Kong, India, Japan, Malaysia, South Korea and Singapore in Asia; France, Germany, Greece, Italy, Poland, Spain, Sweden, and the UK in Europe, South Africa, the UAE, and the United States and Canada in North America. Survey respondents were between the ages of 25 and 65 in Latin America, Asia (except for Japan) and South Africa and 25 and older in Europe, Japan, the UAE, Canada and the U.S. Respondents were required to own investable assets, such as stocks, bonds, mutual funds, etc. In addition, a minimum investable asset threshold was set for each country to ensure that the respondent had sufficient investments, providing a knowledge base from which to answer the survey questions. The survey was completed from February 12 to March 2, 2015, in all countries.

Te see 2015 GISS South Africa Report click here.