There is no doubt that the last decade has seen a massive turnaround in a number of traditional investment markets having seen the highs of the high and fallen to the lows of the low. Investor sentiment has been unnaturally high on numerous occasions and very pessimistic on other occasions perfectly illustrating the fact that human nature plays a major role in the investment markets. So, we thought it would be interesting to take a look at how expats around the world view their investment portfolio and their intentions in the short to medium term. The survey, conducted in conjunction with Barclays International, revealed some very interesting answers.
Before we take a look at the individual investment classes which we covered in our online poll at the expatforum.com we need to take into account economic growth expectations for various areas of the world. On the whole the worldwide economy is expected to struggle in the short to medium term with the impact of Europe weighing very heavy on expected growth. Indeed the European economy is expected to shrink in 2012 and while there are some optimistic forecasts for 2013, nothing is set in stone until the debt debacle has been sorted!
However, the situation in other areas the world such as South America and Asia is very different to that in Europe and the worldwide basis. It is interesting to see that some investors appear happy to stay with the more traditional investment markets, in light of their local economic strength, while others are concerned and are looking towards more peripheral investment arenas. This has given some very interesting trends in our online vote showing very different intentions in different areas of the world.
In many ways investor confidence and investor sentiment is the key to the future but when this will improve is anybody’s guess at this moment in time. We will now take a look at the individual asset classes and how they fared in our online poll.
The property market was by far and away the most popular investment arena amongst expats around the world topping the vote in each and every country. It seems that more and more expat investors are happy to move down the traditional property route which is seen by many as a long-term investment with long-term potential. Quite whether property would have attracted so significant a percentage of the vote if worldwide stock markets had been more buoyant is a matter for debate but it is head and shoulders above anything else.
The very fact that the property sector tops the list of investment asset classes poses the question as to whether some are following the trend in countries showing economic growth or whether some are taking advantage of recent property price reductions in more subdued economies? Either way, it seems that a significant amount of expats are more comfortable in the property market than any other available today. Whether they will reap the rewards in the short term, medium term and longer term remains to be seen but demand is still very much slanted towards this arena.
Precious metals (14.94%)
When you consider that the second most popular investment class in our online poll received less than 15% of the vote, against 48.05% for property, it just shows how all of the other asset classes are fighting for scraps. However, it does also show that the precious metals market is still seen by many as a safe haven in times of trouble and when you bear in mind the price of gold has risen from $300 an ounce back in 2000 to as high as $1800 an ounce in 2011 and currently stands at around $1600 an ounce this reflects demand for precious metals.
It is also worth pointing out that some non-precious metals such as iron ore have benefited over the last few years with exceptional demand from the likes of China and India turning many mining moguls in Australia into billionaires. The demand for such metals in these two countries perfectly reflects their ongoing economic growth at a time when the worldwide economy is struggling and many investors are running for the hills. Whether we will see a switching of investment classes between precious metals, property and perhaps stocks and shares as and when the worldwide economy recovers remains to be seen.
Stocks and shares (10.87%)
We would hazard a guess to suggest that stocks and shares would have been more popular 10 years ago than they are today but the fact that we have seen the US mortgage crisis, further European issues in 2011 and ongoing issues in 2012 has literally blown investor sentiment out of the water. More and more investors are now looking towards some of the non-traditional areas of investment such as precious metals, art, fine wine and even antiques to a certain extent. How long this will continue for remains to be seen but stocks and shares are, compared to historic popularity levels, out of favour.
Historically if you look back at graphs of the worldwide stock market, and indeed individual stock markets, you will see that human nature becomes very prevalent because in times of economic growth investors pushed prices to unrealistic highs while the pessimistic side of human nature certainly comes into play when bad news is all around. Trying to find a balance between overly optimistic and overly pessimistic is nigh on impossible and at some point we will see investors returning to the stock market in significant numbers. However, many believe it will be some time before investor confidence in stock markets is fully resurrected and in the meantime both worldwide and local stock markets could be susceptible to extreme volatility.
Classic cars (8.15%)
The classic cars market has probably fared better than many people would have expected when you consider it is seen as something of an obscure investment arena in the eyes of many people. However, if the experts are to be believed then this is an area of investment which is certainly making something of a comeback and we only need to look at some of the attention grabbing media headlines of late to see that some investors are willing to pay millions of pounds for classic cars and modern-day sports cars.
It is also worth noting that this is a fairly illiquid market place which means that if you need to liquidate your assets at very short notice you may have difficulty finding buyers at the right price. Therefore, this is certainly not an area of the investment world to dip your toe into unless you have done your research and taken professional advice. Not everything that glitters is gold!
The voting pattern for the art market amongst the various countries included in our online poll was very varied and indeed difficult to forecast. When you bear in mind that the worldwide art market is estimated to be worth around US$110 billion per annum it is not a small market although it is dominated by Chinese investors who currently make up 30% of the market place.
In some areas of the world the art market received no votes while in others it was very popular with around 20% of the vote in Pakistan and 12% of the vote in Australia. Again, this is something of an illiquid market and prices are often based upon the rarity value of individual products although they are also susceptible to trends and fashions. Therefore, as with many of the more provincial investment arenas accessible today it is vital that you take professional advice at the earliest opportunity to ensure you are doing the right thing and in order to protect your funds going forward.
Whether the art market has benefited or not from the worldwide economic downturn is a matter for debate because many of the more provincial investment arenas seem to attract those who are looking for potential “safe havens” away from traditional stock markets.
Fine wine (5.77%)
The fine wine market has increased dramatically in size over the last few years and indeed in places such as the UK it is now more heavily regulated than ever before. Historically we have seen a number of scams and fraudsters operating in this particular field but these are now fewer and further between which has given investors more confidence. However, on the whole there was very little in the way of interest across the expat arena in relation to the fine wines market despite the fact we took into account countries such as Australia and France where wine is very popular and for many people a regular tipple.
When you take into account the fine wine market is competing against the likes of stocks and shares, property, precious metals, etc it may not surprise some people to see there is so little interest. However, it does offer a different angle to your traditional investment arena and rather than acquiring individual wines it is now possible to invest in collective investments which are more liquid than the actual assets themselves. No pun intended!
There was varied interest in the antiques market with many expats in some countries showing no interest while others seemed to be more willing and open to the idea. Historically the charts show that interest in the antiques market does seem to improve in times of economic turmoil where again investors are looking for so-called “safe havens”. Whether indeed many investors see antiques as a safe haven is a matter for debate because it is not the most liquid of markets and if you are forced to sell your assets very quickly then you may struggle to find buyers at acceptable prices.
It is also worth mentioning that while the rarity value of individual items plays a big role in their price they will also be susceptible to trends and fashions which can change very quickly in the antiques arena. Therefore, if you’re looking to invest in a fairly liquid investment market then perhaps the antiques arena is not for you?
However, if you do decide to go down this particular route it is again vital that you take professional advice from those who’ve been there, done it and have the research to show you.
Risk reward ratio
If there’s one thing which is clear from this particular investment poll it is the fact that property is by far and away the most popular investment asset at this moment in time. Accounting for over 48% of the vote it is head and shoulders above the precious metals market which was in second place. So, what type of risk reward ratios do we need to take into account?
Any professional investor will use the risk reward ratio as an indicator as to whether an investment is attractive or not. There are two specific types of risk to take into account which are systematic risk, the risk of investing in markets, and specific risk which is the risk attached to specific assets or specific investments. On the whole one is impacted by the worldwide investment arena, and in the main investor sentiment, while the other is based upon individual risks associated with an individual company or asset. Taking the two together it is possible to calculate the potential risk reward ratio and the potential return across a variety of different scenarios.
There are many examples of sudden changes in the risk reward ratio and one such example which is mentioned time and time again occurred after the collapse of the US mortgage market back in 2008. Many investors disappeared from the worldwide money markets because the risk of third parties defaulting on their liabilities increased dramatically. However, those who were willing to lend to financial institutions via the money markets demanded a significant increase in their reward, i.e. the interest rate, which led to a massive increase in the cost of worldwide borrowing.
This situation had a significant knock-on effect to worldwide economic growth, various banking communities around the world and indeed we are still seeing the after-effects today. Many believe that the mortgage market collapse in the US played a major role in the current European debt debacle although others believe that the creation of the Eurozone and the euro was very much flawed from day one. Risks and rewards go hand-in-hand in investment markets although finding investments which are suitable for your needs is not always easy!
The worldwide economy is most certainly struggling with the European debt debacle dragging down those countries which are showing impressive economic growth. Not only is the European situation having a major impact upon money markets around the world, as well as investment markets, but it is also impacting upon investor confidence. Indeed there are many who believe that the European debt problem could take decades to flush through the system and we could see volatile stock markets and economic performance for many years to come.
Historically the US has been perhaps the main leader with regards to the worldwide economy but it has been overshadowed of late by the European issue and indeed the strength of the Chinese and Indian economies compared to the rest of the world. Many experts believe we are on the verge of a major change in worldwide economic powers with the likes of China and India coming more and more to the fore. This has been mentioned on numerous occasions in the past and has never really materialised but the situation we are in today is very different and we could be on the verge of a significant change in the balance of power.
The short to medium-term outlook for the worldwide economy is difficult to say the least although longer term it should only be a matter of time before we return to economic growth. However, exactly when that may be remains to be seen!
It is probably no surprise to see that the property sector grab the lion’s share of votes in our online poll in relation to investment trends and investment strategies. However, it may surprise many to see that the stocks and shares sector was a disappointing third with less than 11% of the vote and indeed behind the precious metals market. This probably reflects investor sentiment at this moment in time and the fact that many investors have had their fingers burnt over the last 10 years and are struggling to recover.
Elsewhere there was sporadic interest in areas such as classic cars, antiques, fine wine and art but on the whole this was very varied and relatively small. So while investor sentiment has taken a massive hit with regards to stocks and shares it seems that property is still the number one asset class amongst expats around the world although there are few who would bet against stocks and shares making a comeback in the medium to longer term.
While many experts believe it may be decades before the European debt debacle is fully flushed through the system, human nature tends to overreact to optimistic and pessimistic news so at the very best we can probably expect volatile investment markets for some time to become. Quite how long the ongoing economic concerns last remains to be seen and while lessons have been learnt, significant amounts of debt have also been amassed.