Investors in the UAE may be susceptible to over-estimating the potential for investment growth in the coming year, according to the research from Old Mutual International and Quilter Investors.
The research included 130 investors living in the UAE, mainly Dubai and Abu Dhabi, who use the services of a professional to invest a minimum of $50,000 in the stock market. When respondents were asked to estimate their expected investment return in the coming year, a quarter (24%) expected returns exceeding 10% and just 7% expected returns to be under 2% or negative.
“A positive outlook is typically a positive trait to have. However, in the world of investment, it should be tempered with a realistic outlook, especially considering how volatile the market place is at present. Some people might see a sharp drop in the value of their investments and decide that they want to cut and run because their positive outlook has been shattered. However, if they have taken financial advice, their adviser should explain that staying locked in for the long-term can ultimately get better returns,” said Paul Evans, head of the Middle East and Africa region, Old Mutual International.
UAE investors' expectations
Global financial markets suffered in 2018. Through the latter half of the year, stock market indices in the U.S. gave up gains made earlier in the year and finished in negative territory. This was echoed in the survey as 69% of respondents blamed market volatility as the reason why their investment returns fell below expectations.
Meanwhile, almost all other asset classes suffered a challenging year as a range of fears over a global trade war, economic slowdown and fluctuating oil prices concerned investment markets.
While people’s expectations are still very positive, they have lowered since 2017 when 28% of respondents expected to achieve over 10% in returns for 2018. Despite this drop, over 10% returns were still the most popular category among respondents.
“Investors still need to be prepared for the fact that over the course of their investment journey, there will be ups and downs. This research suggests that many investors hold optimistic expectations for investment returns in the near-term. This can place them at risk of losing sight of their long-term objectives if their near-term expectations are not met. The volatility we saw in 2018 is normal and even slightly below the historical average, but it is much more pronounced than investors have become used to since the financial crash. We caution that investors may be at risk of recency bias, whereby a ten year bull run has clouded expectation and left investors with unrealistic expectations," said Danny Knight, Investment Director at Quilter Investors.
“While global markets remain fundamentally sound and we believe there are still growth opportunities available for skilled managers, it would be fair to take a measured view on expected returns for this year. The important thing to remember in these moments is that investing is a long-term game. Rallies often follow periods of volatility or decline, and even if markets underwhelm in the near-term, the only way to capture the corresponding upturn is to remain invested,” Danny Knight added.