DUBAI — The survey of almost 1,500 investment professionals from around the world revealed global investors’ views on the potential repercussions of a rapidly shifting geopolitical climate. It follows a previous membership poll taken in July 2016 on the likely impact of the UK’s decision to leave the European Union.
CFA Institute, the global association of investment professionals, surveyed its global member base in February to gauge the impact of current political uncertainties on the asset management industry.
Responses show that concern about the impact of geopolitical risk in the investment profession has grown since the poll in July 2016. Changes to the geopolitical environment are widely expected to have long-term impacts on the financial markets. The vast majority of respondents (70%) expect investment returns to be compromised by geopolitical uncertainties over the next three to five years. However, despite the risks identified by members in the poll, a large majority of portfolio managers (71%) say that they have not changed their strategy as a result of the Brexit vote.
British investment professionals are particularly worried about the effects of Brexit: 70% said that Brexit had caused the competitiveness of the UK market to deteriorate. Equally, assessing the relative attractiveness of international financial centers, respondents overwhelmingly identify London as the biggest Brexit ‘loser’. Frankfurt, Dublin, New York and Paris, meanwhile, are considered to be the biggest ‘winners’.
The survey also revealed that nearly three quarters of respondents from continental EU countries expect firms in their market to reduce their presence in the UK as a result of Brexit.
In addition, the results reflect a growing belief that Brexit will spark further exits from the EU. 59% of respondents believe that further exits from the EU are likely, a 10% increase since the July 2016 poll. The proportion of respondents who think EU wholesale disintegration is likely has also risen, from 21% to a significant 36%. UK fragmentation caused by a successful Scottish independence referendum is also considered probable by the majority (53%).
As well as evaluating the consequences of Brexit, respondents were asked to assess other international political risks. Sixty seven per cent of investment professionals identified the election of President Trump as the political risk with the biggest impact on investment strategy followed by the 2017 French election, with 10% of respondents considering this to be the most significant political risk.
Paul Smith, CFA, President and Chief Executive of CFA Institute, said: “The current state of political uncertainty ahead of Article 50 being triggered is having a clear impact on investment professionals’ market expectations. That said, it is important to remember that geopolitical risk is by no means new: apart from the 20 years following 1989 and the fall of the Berlin Wall, geopolitical risk has in fact been a constant feature of financial markets. It is also only one of many challenges and potential drivers of change in the investment industry.”
“In this climate, it is crucial for investment management professionals to earn the trust of investors. We are enabling our global members and charterholders to understand the potential impacts of such shifts and ensure that they are equipped with the knowledge and skills to safeguard investors’ interests.”
Gary Baker, CFA, Managing Director, CFA Insitute (EMEA), said: “The views of investment professionals revealed in this survey demonstrate that in this region, the City faces serious challenges in the coming years. Expectations that many firms will reduce their presence in the UK is a major cause for concern, especially against the backdrop of markets in the rest of the world experiencing little deterioration. As the world’s largest association of investment professionals, our role is to ensure our members and charterholders are equipped with the educational skills to adapt as a new world order begins to unfold, and to continue to advocate for the highest standards of ethics, integrity and professionalism across the industry.” — SG