New global study reveals the impact of credit crunch on investor behaviour

During times of upheaval in financial markets, investor behaviour can become exaggerated as they seek to protect their capital against swings in asset prices or profit from uncertainty.

Based on the findings of a global survey of 2,300 high-net worth individuals, the report reveals a clear divide in the way investors in both emerging and developed markets are responding to the credit crunch, reinforcing the need for the financial services industry to take more scientific approach to understanding the behavioural and personality traits that drive investors decisions.

Perceptions of risk:

During volatile conditions, survey respondents from emerging markets, including the UAE (43%), China (41%) and India (40%) say they are more likely to increase the level of risk in their portfolios - indicating that they regard the current environment as one of opportunity, rather than a hindrance. The survey results also show that in a period of increased economic volatility, respondents from the UAE (48%) are most likely to switch their fund manager, while wealthy investors from the US (23%) are least likely to select a new manager.

In contrast, the survey results suggest that high-net worth investors in developed markets such as Italy (27%), the UK (29%) and Spain (29%) are among the least likely to increase the level of risk in their portfolios and are applying increased caution to their investments during market volatility.

Age also plays a part, as 51% of investors aged under 50 said they plan to increase their allocation to cash compared to 41% of those above 50. The experience of investing in previous economic cycles means that older generations are less nervous in the face of volatility.

The property ladder - a tale of two trends:

Property prices reached record levels in many parts of the world in the last 12 months and some investors have looked to take advantage of the strong prices more than others. More investors in emerging markets (48%), such as Asia and Eastern Europe, plan to increase their asset allocation to property than those from the Organisation for Economic Cooperation and Development (OECD) countries (37%).

Individuals in developed markets are losing confidence in bricks and mortar, particularly as the market has become more unstable during 2008. Nearly one-sixth (16%) of the respondents and a fifth (17%) of investors in OECD countries plan to decrease their allocation to property, particularly those in Spain (29%) and the UK (22%).

Impact of gender on investment decisions:

While in the past, women have been less confident than men in their financial situations, there is much to suggest this trend is changing. Historical evidence has shown that women's lack of confidence in financial issues stems in large part from their relatively recent participation in the management of money. The gap between the wealth held by male and female high net worth individuals is narrowing, and the numbers of women occupying top positions in business, finance and government swelling. One impact of this is growing confidence in financial issues among women and a new generation of highly financially perceptive female investors.

There are also noticeable gender differences in relation to sources of information used. Women tend to be less influenced by the media than men but are more likely to turn to friends and family. However, male respondents rated the media as their most important source of financial information.

Soha Nashaat, Managing Director and Head of Barclays Wealth, Middle East, North Africa, says:

"In the past few years, the wealthy in the region have become more demanding; expecting higher than average levels of investment performance and service. The insights into the behaviour of investors, gained through these studies, demonstrates yet again the importance of the expert advice of private bankers, especially during turbulent times. It is becoming increasingly crucial that wealth advisors fully understand the psychological and emotional factors that influence the investment decision-making process, ranging from an investor's reaction to volatility to the impact of gender on the investment process. By gaining these critical insights, we can build portfolios for our clients that reflect their individual personalities."

Over-monitoring and increased trading:

More than half (51%) of investors say that they plan to analyse their portfolio on a more regular basis and a further 51% are more likely to monitor a specific investment on a daily or weekly basis, rather than the performance of their overall portfolio (41%). The research suggests that in times of volatility, investors become preoccupied with the performance of their specific stocks, rather than their overall portfolio. This can cause investors to take decisions that may make sense when considered the basis of a specific asset, but which are less rational in the context of the overall portfolio - this can lead to over-trading and can also contribute to market uncertainty.

In their search for the best result, investors are also more inclined to undertake increased trading, with more than a third (39%) expecting to intensify the amount of times they trade in the stock market.

Kevin Lecocq, chief investment officer at Barclays Wealth, says:

"A successful investment strategy revolves around time in the market rather than trying to time the market. Booms and busts will come and go with every bull and bear market; however long-term financial goals are achieved through a consistently executed approach over a reasonable horizon."