The bank polled 2,850 investors globally - including those in the US - about their asset allocation. One notable feature was how they hold a lot of cash, although worries about inflation mean they're thinking of shifting to avoid the erosion of higher prices.
Investors are holding “elevated levels” of cash in their portfolios but want to put more into the stock market, with some worried that rising inflation will erode cash, according to UBS’s quarterly Investor Sentiment survey of individual investors and business owners around the world.
In the US, investors’ confidence in their own economy grew more than any other region. Some 70 per cent said they were optimistic compared with 52 per cent taking that view three months ago, making US investors the most upbeat globally. Optimism on stocks also rose “significantly”, the bank said, from 59 per cent to 71 per cent. Some 61 per cent of US investors expect inflation to rise over the next three years, the highest of any region.
“Investors’ cash holdings are still far higher than our recommended allocations, especially given the current market and economic environment, so it is encouraging that they are looking to invest more in equities. If inflation picks up, the value of cash will be eroded in real terms, and investors will be forced to look to other asset classes to help meet their financial goals,” Tom Naratil, president of UBS Americas and co-president of UBS Global Wealth Management, said.
UBS surveyed 2,850 investors and 1,150 business owners with at least $1 million in investable assets (for investors) or at least $1 million in annual revenue and at least one employee other than themselves (for business owners), from March 30, 2021, to April 18, 2021. The global sample was split across 14 markets: Argentina, Brazil, France, Germany, Hong Kong, Italy, Japan, Mainland China, Mexico, Singapore, Switzerland, the UAE, the UK, and the US.
Cash forms 22 per cent of individual investors’ portfolios globally, declining just three percentage points since September 2020. The high cash weightings contrast with positive market and economic developments over that timeframe, including the rally in stocks, the rollout of vaccines, and the improvement in economic indicators. However, 41 per cent of think about boosting their exposure to stocks in the next six months, compared with 12 per cent who intend to cut it and 47 per cxent who wish to keep their portfolios the same, UBS said.
In particular, 70 per cent of investors said technological transformation was the top theme over the next six months, with 64 per cent thinking stocks are an effective way to diversify portfolios during the recovery and 63 per cent having the view that sustainable investing is a promising opportunity.
Half of investors are also “very concerned” and 26 per cent are “somewhat concerned” that cash will take a performance hit if inflation rises too much. Some 41 per cent said they would increase their holdings of stocks in such a scenario and 31 per cent said they would increase their real estate positions.
Overall, 69 per cent of investors are optimistic on their own region’s economy over the next 12 months, compared with 60 per cent in the survey conducted three months ago. Seventy per cent are optimistic on the stock market outlook for the next six months, compared with 61 per cent in the previous survey.
Some 80 per cent of business owners are optimistic about their own business on a 12-month view, compared with 72 per cent three months ago. Thirty-seven percent plan to hire more, up five percentage points, compared with 13 per cent preparing to downsize, down four percentage points.
Smiling on Biden
Investors and business owners globally said they see the Biden administration as a tailwind for the global outlook over the next four years, the survey said. Sixty-four per cent of respondents said the administration as having a “positive impact” on the global economy, 60 per said it will support global markets, and 57 per cent said it will benefit their personal finances. Fifty-four per cent of business owners said it will boost for their companies. (The findings come at a time when lawmakers and the Biden administration are reportedly mulling a hike in capital gains taxes; in some states, such as California and New York, combined federal and state CGT could, depending on whether hikes are as large as some say, be near 60 per cent. Respondents to the UBS study might take a different view if such changes come to pass.)
Most Latin American investors remain optimistic on stocks (61 per cent) and on their own economy (60 per cent), despite ongoing headwinds to the region’s recovery. Fifty per cent expect inflation to rise over the next three years, the third highest number globally.
European investors outside Switzerland have grown more confident in their region’s economy and in the stock market. In particular, 73 per cent say they are optimistic on stocks, the highest number globally. Investors based in the region are also the least likely to hold more than 10 per e cent in cash, with only 53 per cent of total respondents.
Swiss respondents’ outlook on their own economy jumped over the quarter, with 57 per cent of investors expressing optimism compared with 45 per cent three months ago. Confidence in the stock market also rose by the biggest margin globally, to 67 per cent from 54 per cent in the prior survey.
Sixty-nine percent of Asian investors are optimistic about their region’s economy, making them the equal second most upbeat globally. Asian investors also grew even more confident in the stock market, with 69 per cent expressing optimism compared with 61 per cent three months ago.