France's financial markets authority has warned that individual investors face a strong risk of allocating their investments inefficiently in the medium term due to excessive caution.

In its eighth annual report on risks and trends in the financial markets, France's Autorité des Marchés Financiers, stresses that, if the aversion to risky assets like equities fuelled by the financial crisis persists, investors will miss out the gains likely to be created when markets recover.

The report notes that French savers avoided major losses last year by decreasing the share of equities in their portfolios. Before the crisis started, according to AMF, equities amounted to 16.6 per cent of all financial investments by individual investors. By the end of 2008, the ratio was down to 11.1 per cent.
AMF agrees that the decision to move out of riskier assets towards short-term, liquid investments were prudent measures in the context of a severe financial crisis. But the effects of this decision could turn out to be perverse if the aversion to risk remains the prominent feeling among investors for too long.

“Such behaviour would prevent families in particular to take advantage of the recovery of stock exchanges in the medium term, once the financial crisis is over,” the agency says. “It will be also inadequate concerning the necessary accumulation of long-term savings, especially with views of the financing of retirement expenses.”

Another risk for individual investors, according to AMF, is that they may be urged by their banks to invest in products that are better designed to solve liquidity problems than to meet the investment needs of savers.

The restructuring and consolidation that is taking place in the asset management industry also presents risks to investors, AMF remarks, by reducing competition and creating regulatory conflicts in the case of cross-border operations.

AMF outlines a number of measures that regulators like itself can develop to mitigate such risks. They include efforts to make sure that financial companies follow their duty to properly advise their clients and to avoid conflicts of interests. It also plans to increase the transparency and understandability of financial products and to restrict the access to more complex and risky products to qualified investors.

But the low exposure of investors in France to equities and other risky assets may explain why most well-off French don't seem to be suffering with the financial and economic crisis, as it was revealed by a survey commissioned by the French subsidiary of Barclays. The survey, which aimed to understand how the richest 10 per cent in France are living the crisis, found out that the situation hasn't got any worse for 73 per cent of them.

Of all 502 individuals surveyed, 58 per cent said things haven't changed a bit for them since the crisis started. Meanwhile, 15 per cent boasted that their situation has actually improved in the past two years, while 27 per cent of those surveyed complained that they've had a rougher ride in the same period.

Although they look fairly optimistic about their personal situation, the wealthy in France are concerned with the economic state of their nation. A total of 85 per cent of those surveyed said the economy is in a “bad” or “very bad” state, and 47 per cent believe the crisis will last several more years.

The survey also revealed a strong preference by France's affluent for conservative investment products like savings accounts and life insurance. Equities were mentioned by only 4 per cent as their preferred assets at the moment, while another 7 per cent chose them as their second best option. Mutual funds fared even worse, with 2 per cent and 5 per cent respectively.