SIM finds investor disparity over JSE returns

   Johannesburg, Mar 23 (I-Net Bridge) - The results from Sanlam Investment Management (SIM) Investor Confidence Index point to a disparity in the confidence of local financial advisors and institutional investors over the fortunes of the local market.
    The monthly survey conducted by the Institute of Behavioral Finance (IBF), released on Tuesday, showed improved confidence among financial advisors, with institutional investors more pessimistic on the outlook for market returns.
    Frederick White, head of asset allocation and macro research at SIM, said the results show that financial advisors expect the market to close higher over all periods measured, from one month to one year.
    “Furthermore they expect this performance to be evenly spread through the year and in 12 months’ time they expect the market to close almost eight percent higher than the current level.
    “Institutional investors on the other hand, were much more pessimistic on the outlook for market returns, expecting the market to stay near current levels for at least another six months before it starts rising and then for the market to close less than six percent higher in 12 months time,” he said.
   White said financial advisors were also decidedly more positive on the market’s valuation.
   “Although a mere 6% believed the market to be too cheap (up from 4% in February), there was a marked increase in the percentage of respondents who believed the market offers fair value (58% of respondents - up from 43% in February). These came mostly at the expense of those who thought the market was too expensive (35% down from 52% in February).
   “Again the institutional investors did not agree with the improved assessment of market value. Among this group no one thought the market was too cheap, while 60% still considered it too expensive,” said White.
    Two aspects where the average responses from advisors and institutional investors showed reasonable agreement were the expected movement in the market on a day following a three percent decline, and the probability of a market crash, according to Sanlam.
   On the former, the average expectation was that the market would bounce back by nearly 0.9% - up from near 0.1% in February - while on the latter the probability of a crash was deemed to be about 14% from 16% in February and 20% in January.
    “It is possible that the news flow and general market movement of the last month impacted on the improved confidence among the advisor group. At the time of the February survey, Greece was in financial trouble and investors were questioning the global economic revival. But in the last month the potential bail-out of Greece gained momentum; global economic news flow did not deteriorate any further; the foreseen earnings recovery was indeed confirmed by reported earnings (at least in the US market); and central bankers confirmed that stimulatory policies will be retained in the foreseeable future. 
    “With a potential crisis seemingly averted, it looked like the advisor group was deeming things to be ‘returning to normal’ and hence their expectations had adjusted accordingly. One should have empathy for the fact that they have to face demanding private clients on a daily basis and would find it difficult to attract new business or generate client excitement by erring on the overly negative side of expectations,” White said.
    For institutional investors, it is a case of continued focus on valuation, according to White.
    Gerda van der Linde, executive director at the Institute of Behavioral Finance, said the results for March continued to reflect the behaviour of investors in search of the ‘new normal’ in the aftermath of the global market decline.
    “For the first time financial planners feel comfortable enough to suggest expected returns reflecting the same optimism as shown six months ago.
    “The institutional investors still lag this sentiment in the shorter terms and do not expect positive returns over the one and three months periods, but show the same positive mood as six months ago for returns over the twelve month period. The cautious approach by institutional Investors is still the dominant factor as reflected in their feedback on market evaluation,” van der Linde said.
    The mood of institutional investors indicated a global sobering up in market expectations to a ‘new normal’ of which the dimensions and magnitude was still unknown,” van der Linde concluded.
 
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