Investor optimism drops to early pandemic levels over inflation and geopolitical concerns

Optimism among global high-net-worth investors dipped to early-pandemic levels over continuing concerns about the economic and market impact of inflation and the war in Ukraine, according to a survey by Swiss wealth manager UBS.

Investors are focused on their retirement savings, with some holding off on making big purchases, the UBS Quarterly Investor Sentiment survey found.

Geopolitical risk, inflation, cyber security, global trade conflict and the risk of a potential recession are the biggest concerns for investors in the UAE.

About 45 per cent of UAE respondents to the survey — which polled more than 2,800 investors and 1,129 business owners across 14 markets — are holding off on big purchases and 72 per cent are concerned about the long-term impact on retirement savings and funds for future generations.

“Investors across the globe are concerned about the combination of higher inflation, the war in Ukraine and the potential for a recession,” said Iqbal Khan, president of UBS Europe, Middle East and Africa, and co-president of UBS Global Wealth Management.

UK inflation currently stands at a 40-year high of 9.4 per cent, forced upwards by rising food and energy prices, while US consumer prices also hit a 40-year high of 9.1 per cent in June.

Inflation has been rising in the UAE, in line with the global trend. The consumer price index increased by 3.4 per cent during the first quarter of 2022, compared with 0.6 per cent and 2.3 per cent in the third and fourth quarters of 2021, respectively, according to the UAE Central Bank.

Inflation is projected to reach 5.6 per cent in 2022, the Central Bank said.

Interest rates, volatility, the risk of recession and inflation are the top economic issues cited by UAE investors as barriers to investing more in the market. However, 92 per cent of investors in the Emirates are unsure where to invest in, while 90 per cent are afraid of making a bad choice.

When it comes to investing further in the market, 33 per cent of investors in the UAE would increase investments if the markets decline by a further 10 per cent, the UBS survey found.

UAE business owners are concerned about rising material costs, and 44 per cent have raised prices in the past six months, with 48 per cent set to increase in remainder of the year.

“UAE investors remain vigilant as volatility, inflation pressures and geopolitical risks continue to contribute to a sense of uncertainty,” said Ali Janoudi, head of UBS wealth management for the Middle East, Turkey and Africa.

“They have shown interest in investment themes such as energy security, smart mobility, automation and robotics. Business owners in the region, while also concerned about rising prices and the cost of materials, are optimistic about the regional economy for the next year and plan to continue hiring.”

Although a majority of global investors are now worried about making bad investment decisions in the current environment and are holding on to cash, they see potential investment opportunities if markets decline further. They are highly interested in energy security, smart mobility and automation/robotics as long-term investment themes, according to UBS.

Most business owners surveyed plan to continue hiring workers and invest in their companies over the next 12 months.

Nearly half of business owners globally expect to increase prices in the next six months, driven by rising materials costs and concerns over wage inflation, UBS said.

In the US, short-term investor optimism on the economy and stock market plunged to 39 per cent and 37 per cent, respectively, from 58 per cent in May.

If markets decline a further 10 per cent, younger investors are much more likely to increase their investment allocation, with 38 per cent of millennials likely to do so compared with 18 per cent among baby boomers and older.

In the Asia-Pacific region, optimism remains the highest across all regions, with a majority of investors feeling confident in the stock market and their economy, the survey found.