Eurozone debt crisis remains greatest risk to investment growth, say UK advisers

The eurozone debt crisis and the subsequent ability of over-leveraged economies to reduce their debt are viewed as the greatest threats to investment growth over the next six months by UK advisers, research shows.

Over March and April, debt reduction fears and ongoing crisis in the eurozone scored highest among the macroeconomic concerns preying on the minds of advisers from mainly the UK, but also the Channel Islands and France, according to the latest Barings Investment Barometer.

A majority of those surveyed by the bank’s asset management arm, 65%, said equally that the ability of over-leveraged economies to reduce their burgeoning debt and crisis in the eurozone were the biggest challenges to investment growth over the next six months.

Fears over debt reduction capacity escalated on the previous survey, conducted between December 2010 and January of this year, when over 50% of advisers considered that factor a threat to growth.

Concerns over the eurozone sovereign debt crisis did lower somewhat compared with the previous survey, when 68% of respondents cited that as the main concern, against 65% in the latest findings.

Inflation concerns meanwhile weighed further on the minds of clients, advisers said, with 82% worried about the effect it is having on their cash investments, compared with 74% previously.

As a result, 79% of investors planned to reallocate their cash investments to inflation-protected assets such as equities, inflation-linked bonds, or property, showing a sustained approach on the previous findings when 86% sought to reallocate.

An overwhelming majority of advisers, 80%, were negative on cash as an asset class.

Most advisers, 64%, continued to tell their clients to reduce fixed income exposure, and almost half, 46%, encouraged investors to increase their allocation to emerging markets equities. Of those, 36% advocated greater allocation to Asian equities.

In order to counteract ongoing market volatility, a greater amount of those surveyed encouraged clients to diversify their assets, increasing from 75% in the previous quarter to 82%. Over 50% said they were persuading clients to regularly review their investment portfolios.

Baring Asset Management surveyed 171 investment professionals, from the UK, the Channel Islands and France between 16 March and 14 April 2011.

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