Investors Ponder New Wealth Opportunities
Monday, May 31, 2010

A new report concludes that there is a significant divergence of opinion over wealth creation opportunities in the next five years with some regions being significantly more optimistic than others.

The report, published by Barclays Wealth, suggests that a new "wealth consciousness" is emerging as wealthy investors seek greater knowledge and information about investment. However, the report, based on a survey of 2,000 high-net-worth individuals (HNWIs) across different regional markets, highlights a polarization of opinion on the global economic outlook and a perceived lack of clarity over the potential for investment growth.

Respondents in the Gulf Cooperation Council, which includes Saudi Arabia, the United Arab Emirates, Oman, Qatar, Bahrain and Kuwait, are particularly confident of a global recovery, with 1 in 3 (33%) expecting the economy to grow over the next few years. By contrast, in Europe, less than 1 in 5 (19%) expect global growth in the years ahead while the US takes a more pessimistic view with just 13% forecasting growth in the global economy in the short to medium term.

"There is a great divergence of opinion on what the next decade will bring for the global economy," observed David Semaya, Head of UK and Ireland Private Bank at Barclays Wealth. "The global outlook of wealthy individuals is heavily tainted by experiences in their local markets. While there are grounds for optimism in some local economies, in the UK the outlook among wealthy investors is cautiously pessimistic. Uncertainty over the UK's budget deficit, and an indeterminate political outlook have left some investors feeling wary."

The recent financial and economic crisis seems to have greatly reduced the appetite for risk among affluent investors, with 51% of HNWIs saying they are avoiding perceived high risk investments more than before the crisis.  According to the survey, the wealthy report an "enduring attachment to equities and property, relative to other asset classes."

When asked about the outlook for investment over the coming year, some 47% of respondents say they think equities will perform well. Property is the most favoured asset class among wealthy investors globally, and in the UK, with 50% saying that property will perform well over the next year. However, there are distinct national differences with regards equity and property investment; the Spanish, for example, are more gloomy about the prospects for their economy, with only 19% expecting equities to perform well and just 9% anticipating positive returns on property over the coming year. The Japanese, which have experienced several decades of falling property prices, are also less keen on real estate with just 16% favouring property over the one year horizon.

Surprisingly perhaps, there is far less interest in other forms of investment with only a third saying they expect hedge funds or alternative investments such as wine or art to do well in the next year. Government bonds are the least popular with only 21% saying they will offer positive returns in the next twelve months.

"Uncertainty around the prospects and timing of the global economic recovery is a major factor behind investors choosing the familiar asset classes of equities and property," added Semaya. "Wealthy investors in the UK share the global view in attaching trust to 'traditional' forms of investments. The current economic and political climate in the UK is casting a cloud of doubt over many aspects of business and investment life, and in times of uncertainty the familiar often seems 'safe'."

The report also shows that the downturn has brought about a "newly engaged investor" keen to increase their own knowledge about investment and to call for greater simplicity and transparency in financial affairs. These findings show that:

• The downturn has prompted a thirst for knowledge among wealthy investors, with almost a third (30%) saying they are reading the financial press more than before and over a quarter (26%) spending more time talking to family and friends about investment or consulting their financial adviser more frequently than in the past (27%).
• Wealthy investors are demonstrating increasing self-reliance in managing their portfolios with almost half (43%) reporting that they are reviewing their investment portfolios more now than before the downturn. 
• A widespread engagement among the wealthy in closely managing their financial affairs, with a quarter (25%) spending between two and five hours per week actively investing their money, 16% spending five to twenty hours and 10% spending over twenty hours per week.

"Recent past experience with market dislocation has prompted a new 'wealth consciousness' amongst high net worth individuals around the world," Semeya continued.

"As we start the new decade, investors are paying closer attention to how their assets are being managed and are taking a more hands-on role in the process of investment itself.  The wealthy are knowledgeable about how they invest, as "engaged investors", they want to question the rationale and risks that lie behind investment approaches.  The notion of the wealthy as passive investors, keen to delegate the task the others, seems increasingly out of date," he concluded.