CFA Institute Survey Reveals Impact of the Coronavirus on Global Economy and Investment Management Industry

A new report by CFA Institute, the global association of investment management professionals, analyses the effects of the coronavirus pandemic on the global economy, the capital markets, and the investment management industry.

The survey by CFA showed that 42% of Asia Pacific (APAC) respondents predict large-scale bankruptcies, while 50% of APAC respondents expect that the crisis may induce growing unethical behaviour in the investment management industry (against a global response of 45%).

The full report – entitled ‘Is The Coronavirus Rocking The Foundations of Capital Markets?’ – can be found by CLICKING HERE.

This global survey solicited views and observations from CFA’s global membership on how Covid-19 has affected market liquidity, the role of finance and globalisation, what regulators should and should not do, and changes to hiring plans in investment management firms.

Nick Pollard, Managing Director, Asia Pacific, CFA Institute, said: “CFA Institute brings the unique ability to survey our global membership -- expert practitioners who work in literally every corner of the globe -- to gauge the impact of the pandemic, which quickly caused the markets to crash in all senses. In this report, we detail our members’ latest thinking on the impact that the virus has had on our core constituent base, which is the global investment management industry, looking specifically at the economic situation and the market volatility, the significance of regulatory responses, and longer-term impact of the virus and market conditions on the financial services industry.”

Mary Leung, CFA, Head of Advocacy, Asia Pacific, CFA Institute, said: “The lockdown has had a massive effect on the markets and in terms of the recovery, our members are more cautious on the form it will take compared with others in the financial services industry who have been more bullish. When it comes to the effect of volatility on their strategic asset allocation, two-thirds of the respondents from Asia Pacific reported that their firms are either adopting a ‘wait and see’ approach with their portfolios or have made no changes.”

The report, Is the Coronavirus Rocking the Foundations of Capital Markets, highlights the following themes and statistics from the survey as follows:

Asia Pacific

• Impact on the asset management industry, and on the role of finance and globalisation: Members are predicting large-scale bankruptcies (42%) and also an acceleration of automation to reduce costs (39%). Further consolidation was also a theme (36%), as well as the potential reduction in the globalisation of financial markets and investment flows, and divergence between emerging and developed markets (34%).
• On ethics in times of crisis: 50% of members in APAC think it is likely that the crisis will result in unethical behaviour in the investment management industry (global 45%), with 28% neutral and 22% disagreeing. Respondents in Malaysia and Singapore were the most concerned in this regard, while those in Japan were the least concerned.
• On market liquidity: According to survey respondents, liquidity in equities and bonds in both developing and emerging markets has gone down as a result of the pandemic. At the headline level, figures in APAC are in broad alignment with global figures but this belies intra-regional disparities. 33% of respondents in APAC believed that liquidity in developed market equities and government bonds was down (global 31%), with India and Japan leading at 43% and 42% respectively, compared with a result of 23 to 25% in Malaysia and Australia. For emerging markets equities, liquidity was also down but more respondents in APAC reported a liquidity shock (27%) when compared with global respondents (23%).
• On the regulatory response: 41% of respondents in APAC believe that regulation on market conduct should not be relaxed to encourage trading and liquidity (but 35% thought that it should be relaxed), with 75% of respondents suggesting that regulators should proactively seek the appropriate response through consultation with industry on a possible solution. Additionally, respondents hold strong views on what regulators should and should not do: 72% believe that companies that receive emergency support during the crisis should not pay dividends or compensate executives with bonuses, similar to that found globally (75%); A ban on short-selling should not be considered (72%), global response stands at 83%; A review of ETFs activity during the crisis should be initiated to determine the nature of their potential systemic impact (86%) (Global - 84%); Regulators should focus on investor education about the risk of investor fraud in times of crisis (95%) as well as continued market surveillance (83%): Regulators should not consider imposing security market holidays (81%) or temporarily permitting companies to delay reporting on changes in their financial conditions (60%)
• On members’ employment situation: While it is too early to predict the longer-term effects on employment, about the same percentage of respondents see no change in their firm’s hiring plans (43%) or their firm adopting a hiring freeze (42%), with 13% saying that their firm were downsizing their workforce.

Hong Kong SAR

• The top three industry predictions in Hong Kong SAR are: Expect large scale consolidation of firms (39%). India also scored highly on this issue, listing at 46%; There will be large scale bankruptcies (38%). Australia and mainland China both scored highly here at 46%, with Singapore at 48%; Further divergence of development paths between developed and emerging markets (37%). Mainland China (38%), India (31%) and Singapore (40%) also scored highly here; Unlike their global and APAC counterparts, respondents in Hong Kong SAR did not think that an acceleration in operational automation was likely.
• 47% of Hong Kong SAR respondents said their firms were investigating how market volatility would impact their asset allocation or investment choices, the highest rate in the region.
• 94% said that securities regulators should focus on educating the public about the risks of investor fraud in conditions where they could be taken advantage of; 89% also said a review of Exchanged Traded products (ETFs, ETPs, ETNs) behaviour during this crisis is necessary, so that regulators can determine if they help provide liquidity and price discovery, or if they contribute to extreme volatility and/ or panic selling.
• 55% of respondents said it is likely that financial hardships in the financial industry will result in unethical actions on the part of the investment management industry, higher than both the global and APAC average (45% and 50% respectively).

We recently had the privilege of speaking to Nick Pollard, Managing Director, Asia Pacific at the CFA Institute on the back of the firm’s fourth edition of its Trust Survey, titled ‘Earning Investors’ Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships’.

Please CLICK HERE to read the output of that discussion.