Inflation, a potential recession, and geopolitical risk top the list of concerns, but many see hope on the horizon as sentiment on short-term market outlook begins to recover.

Despite the challenges, 69 per cent of investors in Europe are optimistic about the outlook for their region’s economy over the next 12 months, higher than any other region, a new UBS survey reveals. 

However, geopolitical risk (59 per cent), inflation (57 per cent), and the size of national debt (56 per cent) are causing concern and investors have started to seek alternative sources of yields, according to the quarterly Investor Sentiment report from UBS. 

Sixty-eight per cent have already included alternative investments in their portfolios and 35 per cent are planning to increase this allocation within the next six months. Fifty-two per cent also plan to add to cash amid market turmoil, the survey shows.

Global Investors
On a global level, investors are balancing recession concerns with an improving stock market outlook, it adds. The survey of 2,900 high net worth investors and 1,200 business owners across 14 markets, found that 54 per cent of investors globally are concerned about a recession, compared with 49 per cent in 2Q22. 

However, the short-term market outlook has increased over the last three months and 59 per cent of investors are optimistic about what is to come. Strong demand for goods and services (46 per cent), returning to normal after Covid-19 (43 per cent) and strong corporate earnings (41 per cent) top the list explaining why some investors believe that there’s hope on the horizon, even amidst a difficult market backdrop.

“Inflation, a potential recession and geopolitical risk were the top three concerns for investors and business owners surveyed. Despite this sentiment, many also see reasons to be optimistic,” Eva Lindholm, head of UK and Jersey at UBS Global Wealth Management said. 

“It’s our priority to help our clients to adjust and balance their portfolios accordingly, to ensure they mitigate near-term downside risks and retain upside exposure for the medium and long-term,” she continued.

Investors seek advice
Thirty-one per cent believe that their economy is already in a recession, and another 21 per cent expect one in their market before year-end. Sixty-two per cent of investors expect inflation to increase in 2023 and, as a result, almost half have already cut down on spending, while 37 per cent are considering making a large purchase now, before prices increase even more, the survey reveals. To offset higher costs that come with increased inflation, 31 per cent of investors plan to decrease the amount they are saving.

Sixty-nine per cent of investors also expect interest rates to rise in 2023. If this happens over the next few months, they plan to add cash (38 per cent), alternatives (31 per cent) and adjust sector allocations (31 per cent).

Amid global uncertainty, investors are seeking more advice on market opportunities (74 per cent), how to manage volatility (74 per cent), how to generate yield (73 per cent) and tax optimization (73 per cent), UBS said in a statement. Of those surveyed who have advisors, 87 per cent said that they are seeking more guidance than usual given the current environment. Compared with the previous quarter and in an increasingly rising interest rate environment, respondents seeking advice on borrowing rose the most, the Swiss bank continued.

Business owners are equally optimistic
Among the business owners surveyed, 72 per cent are optimistic about their business over the next 12 months and, despite a recession topping their list of concerns, 41 per cent plan to continue to fill post-Covid-19 hiring gaps, the survey shows. Other concerns include geopolitical instability, wage inflation, and rising materials' costs, UBS said. To manage increased expenses, business owners are buying from lower cost providers and increasing their prices.

UBS surveyed 2,913 investors and 1,198 business owners with at least $1 million in investable assets (for investors) or at least $1 million in annual revenue and at least one employee other than themselves (for business owners), from 28 September to 17 October 2022. The global sample was split across 14 markets: Argentina, Brazil, Mainland China, France, Germany, Hong Kong, Italy, Japan, Mexico, Singapore, Switzerland, the UAE, the UK, and the US.