Economic downturn spurs paradigm shift in investor behavior, Barclays Wealth Report said on Monday. The new report entitled: “New horizon, New behavior” noted that fear is preventing the wealthy from investing, even where they see opportunity. Shedding light on the common concerns and hopes encountered by HNWIs from across the globe in relation to the cyclical movement of world economies and how this is affecting investor behavior, the report published jointly by Barclays Wealth and the Economist Intelligence Unit (EIU), said “while prospects for most asset classes and the global economy remain highly uncertain, recent market rallies and wider discussion of the “green shoots” of recovery have raised the question of whether a turn in the cycle may be imminent.” It noted that a widespread sense of caution and risk aversion highlights the extent to which wealthy investors have been chastened by the events of recent months and suggests that it may be some time before confidence returns to the market. For instance, nearly 90 percent of respondents globally said that there were opportunities in the current market but, crucially, 68 per cent of them believe that the risks of further price falls are still too high to consider them. In general, though, there is a very strong consensus that now would be a good time to make certain investments. Yet at the same time, fear is preventing the majority of high-net worth individuals from re-entering the markets. Soha Nashaat, chief executive of Barclays Wealth Middle East, said: “High-net worth investors should not be considering what happens over the next month as important, but rather what happens over the next five, 10 or 20 years. With an appropriate time horizon in mind, short-term fluctuations in market prices become less important and the real value of investment opportunities can be more objectively assessed.” 21 percent of respondents in the United Arab Emirates feel that there are significant investment opportunities in the current market and 36 percent will increase their level of risk over the next 12 months, this is the second highest in ranking following UK respondents who will increase level of risk by 37 percent. Again, the UK leads in willingness to make higher-risk investments at 32 percent, US at 31 percent, and UAE at 27 percent compared to the remaining seven economies including, Hong Kong, Canada, Switzerland, Singapore, Monaco, India and Spain. Evidence of this trepidation, the report said, sees the majority of surveyed investors saying that they would make no adjustments at all to the proportions that they hold across major asset classes over the next 12 months. For example, globally, 58 percent said that they would make no change to their allocation of domestic stocks, while 65 percent said that they would neither increase nor decrease their exposure to hedge funds. Behavioral finance experts questioned for this report suggested that a pervasive “fear of regret” is impeding more decisive action among many wealthy investors, and encouraging them to stick with the status quo until they feel they have a better understanding of the situation. “One of the consequences of this sensitivity to loss is that investors become reluctant to make changes to their investment strategy or asset allocation. However, it is necessary to review one's asset allocation to best leverage current and predicted market conditions lest the investor miss the inevitable positive turn in the cycle,” Nashaat said. The current perceived instability in the market has also driven investors to seek out simpler and more transparent investment opportunities. More than 50 percent of investors agree that, in the current environment, they will only invest in what they know. Where respondents are seeking greater exposure to specific assets, it tends to be to the most straightforward, with real estate, cash, government bonds and domestic equities the most likely beneficiaries of increased allocation. The perception that complexity, in the shape of financial assets such as collateralized debt obligations, played a central role in the current crisis is only exacerbating this trend. The survey revealed regional differences in expected changes to allocation. At 31 percent, respondents from the UAE are most likely to increase their allocation to real estate regionally and internationally, while those from the US are more likely to increase allocation to domestic equities. In the case of the investors from the UAE, one can explain this tendency on the grounds of a strong preference for “bricks and mortar” investment - despite the scale of the recent property crash in Dubai. Meanwhile, the expected increase in allocation to domestic stocks in the US reflects a longstanding faith in the equity culture that may not be as prevalent in other regions. A further result of the current environment of caution is of due diligence moving up the priority list for many high-net worth individuals, with almost one half of respondents saying that they intend to increase the amount of time that they spend selecting specific investments. Equally, when choosing a financial provider, the quality and transparency of investor information is becoming much more important as a criterion for selection, along with the financial stability of the institution. __
