Optimism for global markets is on the rise but Canadian investors remain cautious, choosing to invest in Canada for the balance of 2012, a recently released survey finds.
In the near term, and perhaps not surprisingly, Canadian respondents remain conservative and in favour of keeping their investment money in Canada, the annual Franklin Templeton Global Investor Sentiment Survey suggests. But over the long-term, Canadians appear to have a greater appetite for risk and an interest in investing abroad.
"We seem to have a lot of people on a global basis that share the same home bias that Canadians do and maybe on the risk side of it, Canadians are not quite as risk-adverse as everyone else in the world," says Don Reed, president and CEO of Franklin Templeton Investments Corp.'s Canadian-based operations in Toronto. "Generally speaking, our economy all the way through (the recession) has been in a lot better shape than many economies around the world. That gives Canadians more confidence."
Highlights of the survey include:
- 44 per cent of investors surveyed from around the world expect a five per cent or greater rate of return on their investments in 2012
- 40 per cent expect returns of five per cent or greater this year for equities
- optimism increases when respondents consider a 10-year time horizon, with 50 per cent anticipating that same level of positive annualized return.
Canadian attitudes mirror global ones, as 41 per cent of Canadians surveyed expect a rate of return on their investments of five per cent or greater this year. Forty per cent of Canadians expect stocks to return five per cent or greater in 2012.
Laura M. Wallace, vice-president and portfolio manager, Scotia Asset Management LP in Toronto, deals with discretionary management and high net-worth clients. She says over the last decade Canada has proven to be a great place to be invested.
"There's still a view this is a good place to be. There is an increasing optimism about the outlook for stocks but it's more a function of the fact that interest rates are so low," she explains. "Of course, there is an incentive to stay in Canada if your focus is on dividend paying stocks because of the preferential treatment Canadian dividends receive."
Canadians still reeling from 2008 crisis
Generally Canadian investors remain wary of stock market investments since the 2008 financial crash hit, she continues.
"2008 was a searing experience for many Canadian investors," she says. "That's led to more cautiousness overall about exposure to equities and a search for alternative investments that might provide more stable returns."
Kathryn Del Greco, vice-president and investment advisor at TD Waterhouse Private Investment Advice in Toronto, also says in her experience investors are still feeling cautious about investing in general.
"They're primarily focused on income-producing assets and those that produce in a low-risk fashion. We had positioned with investors the opportunity of U.S. blue chip equities which up until recently have been on a positive upswing," she says. "In general, the events of 2008-09 are still fresh in people's minds. I don't think there are many investors that feel quite comfortable about branching out too far internationally with the potential volatility that Europe is presenting."
However, over the long-term, Del Greco says investors recognize the future growth opportunities in emerging markets such as those in Asia.
"Once you stay outside of Europe, I think investors can see where the opportunities are," she remarks. "But the short-term volatility as a result of what's happening in Europe is causing many investors to sit on the sidelines and wait for the opportunity to dip a toe into international investing."
Uncertainty about the global economy has continued to heavily influence respondents' attitudes toward investing, the Franklin Templeton report confirms. Slightly more than half of those surveyed (51 per cent) believe the global economy has deteriorated and 45 per cent say they have become "somewhat to more" risk averse over the last three years. Reflecting that conservative outlook, only a minority (one in five) of respondents would seek to make their portfolios more aggressive this year.
Canadians, however, appear to have a greater appetite for risk. Only 39 per cent of Canadians are more risk averse in the last few years compared to 45 per cent of global investors. Fifty per cent of Canadian investors consider stocks to be the riskiest long-term investment compared to 52 per cent of global investors.
Although those surveyed remain hesitant when it comes to investing in global markets, most have done so. The majority (72 per cent) of global respondents have a limited portion (less than 20 per cent) of their portfolios invested beyond their home countries; whereas, a minority of investors (28 per cent) currently hold 21 per cent or more of their investment portfolio outside their home country.
Among Canadians, about 73 per cent currently have a low percentage of their investment portfolio outside their local market. The survey indicates Canadians' global investment exposure will slowly increase over time. By 2022, about 62 per cent of Canadians will hold a low percentage of their investments outside their local market, the report states.
The big conundrum facing investors presently is they want the safety normally provided by fixed income but the return opportunity is so low given where interest rates are.
"That's providing a push into the equity markets which are inherently more volatile," Wallace says. "That's the tension between the desire for stability and the need for a return."