Investors Confident Despite War, Inflation Concerns

Amanda Cheesley

5 May 2022

A new investor sentiment survey by UBS shows that investors are deeply concerned about the impact of the war in Ukraine on the economy and rising inflation, but aren’t adjusting their portfolios yet.

The quarterly survey, which polled more than 2,500 investors and 1,000 business owners across 14 markets globally, found that 92 per cent of investors expect the war to increase inflation, and more than half believe that inflation will last longer than 12 months. (UBS recently spelled out how it thinks inflation is the most urgent concern for investors.) New figures underscore how serious the inflation situation is. Data from the Paris-headquartered Organisation for Economic Co-operation and Development, a club of industrialised states, finds that consumer prices in the OECD area rose by 8.8 per cent year-on-year in March 2022, compared with 7.8 per cent in February and just 2.4 per cent in March 2021. This was the sharpest increase since October 1988.

Most investors foresee a negative economic impact from the war, with 66 per cent expecting higher energy prices, 64 per cent expecting more global instability and 60 per cent concerned about increased cyber attacks, UBS said in a statement.

Although investors aren’t adjusting their portfolios yet, they are poised to do so should the market decline further, the group added. Many are now more likely to consider buying gold, domestic stocks and oil, while technology and energy remain the most attractive sectors in the current market environment.

The sources of concern for business owners increased with geopolitical instability joining rising material costs, tax increases, heightened regulations, and supply chain difficulties. As a result, confidence in their own businesses for the next 12 months declined by 11 per cent.

“Investors globally are clearly concerned about the personal and economic impacts of one of the largest humanitarian crises in decades,” Iqbal Khan, president of UBS Europe, Middle East, and Africa and co-president of UBS Global Wealth Management, said. “The long-term economic implications of the war in Ukraine are difficult to assess, but most investors remain optimistic on their outlook for the stock market and are confident in their well-diversified investment portfolios,” he added.

Regional findings
In the US, short-term investor optimism in the economy and stock market has increased slightly by 4 per cent since the last quarter, reaching 58 per cent, UBS said. But plans to invest more in the next six months are down by 3 per cent to 33 per cent. Geopolitical risks are cited as a top concern, followed by inflation.

In Latin America, short-term optimism rose by 2 per cent this quarter to 60 per cent, with 61 per cent of investors optimistic about the outlook for stocks in their region. Over half of those surveyed plan to invest more in the next six months, UBS added.

Across Europe, excluding Switzerland, just over two thirds of investors surveyed remained optimistic about their economy in the short-term. But optimism related to the outlook for stocks in their region decreased by 4 per cent to 63 per cent, the group said.

In Switzerland, optimism in the Swiss economy in the short-term returned to 2020 levels, with only 33 per cent of investors optimistic this quarter compared with 68 per cent last quarter, the group said. There has also been a decline in plans to invest in the next six months, with only 24 per cent planning to invest, down by 6 per cent from the last quarter.

In Asia, investors remained optimistic about the six-month outlook for stocks in their region, as well as the economy in general. There has been a minor decrease of 2 per cent in those planning to invest more in the next six months, UBS said. The COVID-19 pandemic nevertheless remains a concern for many in China but it has fallen across Asia-Pacific more broadly.

UBS provides financial advice and solutions to wealthy, institutional and corporate clients worldwide, as well as private clients in Switzerland. It is the largest global wealth manager, and a leading personal and corporate bank in Switzerland.