Anthony Serhan

Australian investment leaders and their global colleagues are united when it comes to expectations about oil prices and the most favourable global equity markets in 2015, but are at odds about the importance of interest rates, world GDP and emerging market economies.

This is according to CFA Institute, the world’s leading association of investment professionals, following the release today of the Australian results of its 2015 Global Market Sentiment Survey.

“The similarities and differences between global and local respondents’ views on the same issues are in some cases very revealing,” said Anthony Serhan, President, CFA Society of Sydney. “Certainly they can help investment leaders gain a clearer picture of what to expect in 2015, both near to home and globally.”

The global survey collates insights from over 5,250 CFA-member investment professionals worldwide. It covers their views of both local and global economies, reveals investment sentiment, predicts likely performance of world markets and identifies major perceived risk factors for the year ahead.

The newly released Australian version pulls out local data to provide a clear picture of how Australia’s investment leaders view the 2015 landscape.

The significance of interest rates was a key point of difference between Australian respondents and others, with Australia one of only two countries (along with South Africa) to cite a rise in interest rates as the major risk to global markets in 2015.

According to Mr Serhan, this finding is worth noting.

“Global annual inflation rates continue to remain low and leading economists have suggested that falling bond yields and lower levels of global growth may instead produce the reverse, a risk of deflation,” he said.

“One could argue about the source of this concern and perhaps even its validity, however what does seem clear is that for investment professionals, interest rates are a factor that may affect decisions as we move ahead in 2015. Ultimately I think this reflects the importance of US markets and the real question over what will happen to financial assets globally when rates do rise in that market.”

Where Australian investment professionals were firmly in line with the rest of the world was on oil prices. More than half of all those surveyed predicted the drop – but none to its full extent.

Mr Serhan said such findings shine a spotlight on the rapidly emerging debate and discussion du jour: is the fall in oil prices temporary, driven by sentiment or short term conditions, or evidence of a longer term structural shift?

“It seems that everyone was surprised by the freefall in the price of oil, which almost halved between October and January. Although we are experiencing a bounce now, investors continue to question where the price will end up and the wide-ranging flow on effects across all markets,” he explained.

On the world economy, Australians take a somewhat different view from many offshore colleagues and the World Bank. While the latter is predicting global GDP growth of 3.0% in 2015, fewer than 30% of survey respondents agree – and Australians are among the most dubious of all.

Australian predictions put both global and domestic GDP growth at 1.6%, making us less bullish than many others, but not out-and-out bears, either.

“Australian analysts and charterholders were the only ones to put global and domestic growth at the same level for 2015, and among the few in developed countries not predicting underperformance from their domestic economy. In Europe and Japan, for example, respondents predicted significant differences between local and global growth. This appears to indicate a fundamental pessimism about the ability of their own economies to perform, and a reliance on other countries to provide much-needed stimulus, which is absent closer to home,” Mr Serhan said.

When it came to risks for the local economy, Australian respondents saw the biggest threat as weakness in emerging market economies (33%).

While not surprising given our economic reliance on China, Mr Serhan said that, at the same time, Chinese equity market performance ranked as a top pick (9%), second after those of the United States (33%). So it’s not all bad news out of China.

“On the flip-side, when it came to identifying positive influences in our domestic economy, accommodative central bank policies (28%) and an increased focus on job creation (25%) were cited as factors most likely to support capital markets,” Mr Serhan explained.

“And the recent interest rate cut indicates that the RBA may well agree.”

In conclusion, Mr Serhan said this year’s Survey provides important insights into key economic and market themes guiding investment professionals in some of our leading organisations. The quality of the data coming out of the CFA survey makes it a particularly worthy barometer.

“With nearly 120,000 members globally, CFA Institute is ideally placed to bring together the most experienced and highly qualified investment minds from around the world and to highlight the big issues affecting global markets,” he said.

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