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.
For the first time, Franklin Templeton has included the UAE as a key country in the global survey, signalling the market’s growing role on the international stage.
Commenting on the UAE results, Dhiraj Rai, Director, Gulf & Eastern Mediterranean, Franklin Templeton Investments said: “What we are seeing is a broad mix of indicators pointing to positive sentiment from UAE investors, albeit with the price of oil weighing on this sentiment. Despite this tempered view, we are particularly encouraged by the fact that investors in the UAE are overwhelmingly optimistic that they will reach their financial goals.”
Optimism towards local stock markets, wariness towards oil price decline
According to the survey’s results, just over half of those polled (56 percent) believed that the local stock markets rose in 2014; of whom 19 percent thought this rise was significant, when in fact, the markets returned 13.71 percent last year according to the MSCI UAE GR USD index1.
Investor sentiment for the year ahead is more bullish, with 64 percent believing the market will continue to move upwards, a distinct possibility as the UAE’s GDP growth in 2015 is projected by the IMF to grow by 3.2 percent2.
“The UAE continues to benefit from its long-standing policy of diversification away from oil. It has shown remarkable development as a tourism destination, a trade hub and a financial centre. There are also encouraging signs of regulatory reform, including the recently announced Companies Law, which will facilitate further IPO activity. This follows from the UAE’s successful upgrade to MSCI Emerging Markets status last year. We continue to find high potential, compelling investment opportunities in these markets,” said Bassel Khatoun, Head of MENA Equity, Franklin Templeton Investments (ME) Ltd.
Globally, more than half (58 percent) of investors surveyed believe their local stock market will post positive returns in 2015. Regionally, the U.S. & Canada (64 percent) are the most optimistic about future local stock market returns, closely followed by Europe (62 percent) and APAC (56 percent).
Real estate, stocks and precious metals dominate investor appetite – but also risk
Topping the list of UAE investors’ most favoured asset classes was real estate, with 67 percent believing the asset class to be among the most favoured asset classes in 2015, and 68 percent over the next ten years. Stocks (47 percent) and precious metals (39 percent) round out the top three.
This was not entirely different than global results, which indicated a preference for stocks over real estate, which was the second most favoured, followed by precious metals. 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 out the top three.
The picture did not significantly vary when looking at longer investment horizons for local and global investors. UAE investors continue to rank real estate (68 percent), stocks (46 percent) and precious metals (39 percent), compared to global investors who rank stocks (55 percent), real estate (55 percent) and precious metals (42 percent) as the top three over the next decade.
Interestingly, optimism for the leading two asset classes for UAE investors, real estate and stocks, comes despite investors ranking these as the top two of three riskiest asset classes in 2015 and over the next 10 years. Forty-three percent ranked real estate as a top-three riskiest asset class for 2014 (40 percent over the next decade), followed by an even 41 percent for stocks in 2015 and over the next decade. Non-metal commodities rounded out the top three, no doubt an indicator of doubts over oil prices, with an even 34 percent for both 2015 and the next 10 years.
In terms of markets expected to provide the best equity returns in 2015 and over the next decade, the top three were listed as: The Middle East (33 percent for 2015; 34 percent over the next decade), Asia including India (30 percent for 2015l 27 percent for the next decade) and the U.S. & Canada (13 percent for 2015; 12 percent over the next decade).
For fixed income markets expected to provide the best returns for 2015 and over the next decade, UAE investors listed these as the Middle East (34 percent for 2015; 32 percent over the next decade), Asia including India (24 percent for 2015; 27 percent for the next decade) and the U.S. & Canada (15 percent for 2015; 14 percent for the next decade).
Shariah-compliant investments increasingly on investors’ radars
Shariah-compliant investment is garnering significance among investors in the UAE, with a significant majority – 79 percent – expressing interest in the space. When looking across the top three reasons for investing, ethical investing (40 percent), strong performance (32 percent), and less risk (31 percent) are the top three most cited reasons.
“With over 1.5 billion Muslims worldwide, representing approximately one-fifth of the world’s total population and growing at the fastest rate among all major religious groups, the fundamental case for Islamic finance is compelling. While the industry evolved initially as an alternative form of financial intermediation, primarily to meet Muslims’ desire for Shariah-compliant investments, it is now a complete and integral component of the mainstream global financial system,” said Mohieddine Kronfol, CIO, Global Sukuk and MENA Fixed Income, Franklin Templeton Investments (ME) Ltd.
UAE Investors bullish on reaching investment goals this year – second only to India
Investor sentiment is running high on the subject of reaching investment goals in the 2015 survey. Ninety-four percent of respondents expect to meet their targets, putting the country on par with China, and second only to India amongst the 23 markets polled.
Specifying these goals, UAE investors listed buying a new home (25 percent), starting or investing in a new business venture (21 percent) and retirement (13 percent) as their top three goals. Despite such priorities being typically long-term in nature, UAE investors overwhelmingly look at a short timeframe when evaluating investment success, with the majority (73 percent) looking at a period between zero months to two years.
Falling oil prices top concern for UAE investors
Investors in the UAE are increasingly concerned about falling oil prices, with 39 percent listing this as their top concern, followed by inflation (33 percent) and the state of the global economy (30 percent).
Globally, investors listed their concerns as: the state of the global economy (38 percent), government fiscal policy (32 percent) and the Eurozone debt crisis (32 percent). The global economy is the biggest concern, particularly among U.S./Canadian (48 percent) and APAC (40 percent) investors.
For UAE investors the evident wariness is perhaps weighing on risk appetite, as a majority of those polled (65 percent) plan to be more conservative in 2015. This is also supported by the finding, along global lines, that shows almost all investors (95 percent) agreeing that risk management expertise is an important factor in choosing an investment manager.
“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. 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,” said Brooks Ritchey, senior managing director and head of portfolio construction, K2 Advisors, and director of investments solutions, Franklin Templeton Solutions.
Factors when selecting and selling a mutual fund
When looking at factors that influence the decision to select a mutual fund, the survey revealed that more UAE investors tend to look to past performance, more than any other factor (24 percent) followed by fund liquidity (16 percent) and professional advice (15 percent).
Meanwhile, the leading factor behind investors’ decision to sell a mutual fund was revealed as profit booking (25 percent), followed by market volatility (24 percent), and achievement of investment goals (24 percent), with the remainder providing a range of other reasons to sell.
“We are pleased to have included the UAE as part of the Global Investment Sentiment Survey this year. The results are indeed telling, and serve as an opportunity to reiterate the importance of consulting a qualified financial advisor who can help define investor needs, as they narrow the search for investments suitable to unique financial objectives and risk appetites,” concluded Rai.