Views on improving the integrity of global capital markets
20 December 2013

2014 Market Outlook Americas: Optimistic, but Ethical Culture Needed to Build Trust

Cautious optimism is building among CFA Institute members concerning the global economy and their own local markets. This sentiment is echoed in the Americas. The fly in the ointment is that 54% of members around the world feel that a lack of ethical culture within financial firms has contributed the most to the current lack of trust in the finance industry. Fifty-one percent of survey respondents in the Americas shared this sentiment.

These findings come from the just-released 2014 Global Market Sentiment Survey (GMSS) that is conducted annually by CFA Institute. The GMSS is unique in the marketplace as it contains the insight of investment professionals from around the globe who are involved in virtually every facet of investing. This year’s survey reflects more than 6,500 CFA Institute member responses.

Some 63% of our members feel that the global economy will grow in 2014 — a far more robust expression of confidence than when the question was asked last year; only 40% could muster that positive outlook. In the Americas, sentiment about the global economy is largely in line with global survey respondents (62% in the U.S., Canada, and the Americas as a region), while survey respondents in Brazil were among the most optimistic, with 74% saying that they expect the global economy to expand.

Sentiment was more dispersed among major markets in the Americas when the question turned to the local markets of survey respondents. When asked what they expected of their local markets in the coming year, 62% of respondents in the U.S. said the U.S. market will expand; 51% of those in Brazil feel the same about their local market. Somewhat surprisingly, only 47% of Canadians believe the Canadian market will expand in the coming year. Globally, 57% of survey respondents believe their local markets will expand, while 59% in the Americas feel this way.

Thirty-one percent of all survey respondents feel that continued weak economic conditions will pose the biggest risk to global capital markets in 2014, in line with similar sentiment in the Americas (32%). Survey respondents in Brazil (36%) and the U.S. (32%) largely agree, but Canadians listed political instability (32%) as the biggest global risk.

When asked to choose the biggest risk to their local markets, this sentiment in the Americas was reversed, with those in Brazil (38%) and the U.S. (37%) choosing political instability as the biggest local risk. Canadians feel that weak economic conditions (43%) are the biggest local economy risk in 2014.

Regulatory Reforms

Along with members’ outlook on economic and market issues, we asked about the state of integrity in both global and local capital markets. When asked which regulatory action was most likely to improve market integrity at the global level; 29% of all respondents chose improved regulation and oversight of global systemic risks — ahead of improved transparency of financial reporting (21%), improved corporate governance (17%), and better enforcement of existing regulations (16%). Improved regulation and oversight of systemic risks is the top desired global reform in Brazil (37%) and Canada (29%), while in the U.S., survey respondents most desired improved transparency of financial reporting (28%).

On the local level, survey respondents in Brazil (41%), Canada (33%), and the U.S. (30%) all agreed with their global counterparts (30%) that improved enforcement of existing laws and regulations is the regulatory or industry action most needed in 2014 to improve investor trust and market integrity in their local markets.

We also asked members about regulatory reforms that have potential for positive effect as well as unintended negative consequences. Globally, 72% of the survey’s respondents identified requiring banks to impair troubled credit holdings on a more consistent, timely basis as helping to prevent future crises, with those in Brazil (82%) among the most supportive of this reform.

Survey respondents in the U.S. were more likely than others to feel that certain regulatory reforms will have unintended negative consequences. Of those respondents in the U.S., 40% thought that a designation of “too big to fail” institutions for closer monitoring will result in unintended negative consequences (37% in the U.S. thought it could prevent future crises). The recently adopted Volcker Rule also drew scrutiny, as 36% of those in the U.S. feel that proposals like the Volcker Rule limiting bank proprietary trading will lead to unintended negative consequences (45% in U.S. thought it could prevent future crises), while 28% had similar feelings toward increased bank capital and liquidity requirements (61% in U.S. thought it could prevent future crises).

Ethics Remains a Problem

Fifty-four percent of survey respondents globally feel that a lack of ethical culture within financial firms has contributed the most to the current lack of trust in the finance industry — 13% chose market disruptions as the factor most to blame for today’s lack of trust. Respondents in the Americas region largely agreed as 51% of those in the region (55% of those in Canada, 52% of those in Brazil, and 49% of those in the U.S.) cited ethical culture within financial firms as the top cause of today’s lack of trust in the finance industry.

When asked to rank the ethical issues in global markets from most to least serious, respondents in the U.S. (28%), Brazil (26%), and Canada (24%) all agreed that market fraud was the most serious global concern. Those in the Americas region largely agree, with 27% putting market fraud at the top of their list of concerns, followed by integrity of financial reporting at 24%.

When asked to rank the ethical issues in their local markets from most to least serious, those in Canada chose mis-selling by financial advisers (34%) as the most serious, while those in Brazil (52%) and the U.S. (23%) both expressed the most concern about market fraud. In the Americas as a whole, mis-selling and market fraud tied as the greatest concern at 23% each.

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About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

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