Key takeaways are HNW investors’ expectations that inflation will continue, and, given volatility, they are considering adding stocks and portfolio hedges, putting cash to work, and borrowing ahead of potential rate rises in the form of new and refinanced mortgages, and security-backed loans.

Around half of high net worth investors worldwide are holding on to cash over concerns about a market downturn, according to a survey by UBS. Some 3,000 investors (with at least $1 million in assets) and 1,200 business owners (with $1 million or more in annual revenue) across 15 markets globally were interviewed by the Swiss bank.

In the US, 61 per cent of those surveyed are holding more than 10 per cent of their portfolio in cash and equivalents, compared with 59 per cent at the start of 2021. More than 80 per cent of American investors want the current administration to make controlling inflation a key priority. 

UBS also found that investor optimism in Europe has fallen 10 percentage points since the previous survey in Q3 last year. Short-term optimism in stocks has also fallen. However, 68 per cent of European investors are feeling optimistic about the region’s economy in the short-term and 43 per cent said they plan to invest more in the next six months. 

Unlike the rest of Europe, Swiss investor optimism is up from last quarter, with 68 per cent feeling optimistic about their economy in the short-term, a 12 percentage points increase from 3Q21. Sixty eight per cent of Swiss investors are optimistic about Swiss stocks, up from 46 per cent in Q3. Despite their confidence in the market, investors remain cautious in the near term, with only three in 10 planning to invest more in the next six months.

In Asia, short-term optimism about countries’ own economies is at 63 per cent, similar to 3Q21. Six in 10 (63 per cent) of Asian investors remain optimistic about the six-month outlook for stocks in their region, and nearly four in 10 (38 per cent) plan to invest more in the next six months.

In Latin America, short-term optimism is down from 3Q21, with six in 10 (58 per cent) investors feeling optimistic about the region’s economy, and 59 per cent of investors feeling optimistic about the short-term outlook for stocks in their region. The dip in optimism has affected their investment plans, with 52 per cent planning to invest more in the next six months, down from 60 per cent in Q3.

Rising interest rates and inflation rank among the biggest concerns globally, according to the 2022 Investor Sentiment survey by UBS Global Wealth Management, with two thirds of investors polled holding more than 10 per cent of their portfolio in cash and, of those, half are “waiting for the right opportunity” to invest. 

In recent weeks high inflation figures from countries such as the UK and US have rattled investors, with the US Federal Reserve flagging a number of rate hikes this year, and the Bank of England raising rates a few days ago. A number of wealth managers say that they expect tighter monetary policy this year.

Inflation alert

Source: UBS

In the US, inflation concerns are paramount, most notably for investors who want the current administration to make controlling inflation a key priority (82 per cent). US investors also think that inflation will continue through 2022, with almost half concerned about a market downturn. Amid the market volatility, US investors are considering adding stocks and portfolio hedges, putting cash to work, and borrowing ahead of potential rate rises in the form of new and refinanced mortgages, and security-backed loans, UBS said.

Globally, higher goods, petrol and energy prices along with the belief that elevated inflation will last more than 12 months have dampened investors’ economic optimism. However, UBS found that they were confident of stock market performance over the next six months, with many seeing an opportunity to borrow and make portfolio changes. 

“With the effects of COVID-19 expected to impact the healthcare industry for years to come and a shift to a more digitalised world, investors see further opportunities in these sectors,” Iqbal Khan, president of UBS Europe, Middle East, and Africa and co-president of UBS Global Wealth Management, said. “However, given high levels of inflation and interest rate hikes on the horizon, investors are waiting for the right moment to put their money to work.”  

Regional breakdowns – market downturn and portfolio changes
Concern over market downturn is most felt by investors in Latin America, at 62 per cent, followed by Europe (except Switzerland) and the US at 48 per cent, Asian at 45 per cent, and Switzerland at 33 per cent.

When considering portfolio changes, 42 per cent of HNW individuals would add stocks, another 42 per cent would add portfolio hedges, 40 per cent would reduce cash and 39 per cent would reduce bonds.