Facing up to the risks

PUBLISHED : Tuesday, 31 May, 2011, 12:00am
UPDATED : Tuesday, 31 May, 2011, 12:00am


A conference in Edinburgh, Scotland, attended by 1,300 of the world's leading investment professionals, highlighted the worries these experts have about the mainland economy and where the trouble lies.

The conference also revealed the other main concerns of the investment community over the state of the global economy.

The event was organised by the CFA Institute and delegates were there to debate issues facing the investment world at a time of uncertain geopolitical, inflation and currency trends.

Organisers conducted a poll which asked: 'What investment risks are top of the mind for leading investment professionals worldwide?'

The answers threw interesting light on the burning questions for professionals such as analysts, strategists and economists.

About 26 per cent of delegates polled said the biggest threat to the mainland economy would come from demographics and 24 per cent said political threats could pose a risk to the second largest economy in the world. Only 12 per cent said an asset bubble, such as equity valuation and housing, was the big concern.

This view is in contrast to opinions of local analysts who say the mainland has to control the asset bubble before tackling other social ills.

Most of the professionals attending the conference were of the view that mainland authorities should tackle the demographics, implement growth in undeveloped areas and make efforts to ensure economic development reaches the lowest strata of society.

Judging by the results of the survey, it seems investors are concerned about three issues: higher-than-average global market volatility; the threat of deficits and sovereign defaults; and the potential for rising inflation.

Some 42 per cent of the global investment professionals polled said rising inflation was the most worrying aspect of the global economic outlook and 55 per cent said sovereign risk, debt and default were the biggest external threat to investments.

Seventy four per cent of investors believe global market volatility will be higher than the historical average in the next year.

Furthermore, more than 50 per cent of respondents believe global regulatory authorities have missed an opportunity to reform in response to the financial crisis.

This view is a stunning rebuff to the quantitative easing by the Federal Reserve in the United States and other central banks such as the Bank of England and the European Central Bank.