UAE investors potentially overestimating expected 2019 returns

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Tuesday 05, February 2019

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New research from Old Mutual International and Quilter Investors shows investors in the United Arab Emirates (UAE) may be susceptible to over-estimating the potential for investment growth in the coming year.

When respondents were asked to estimate their expected investment return in the coming year, a quarter (24 per cent) expected returns exceeding 10 per cent and just 7 per cent expected returns to be under 2 per cent or negative.

Global financial markets suffered in 2018. Through the latter half of the year, stock market indices in the US gave up gains made earlier in the year and finished in negative territory. This was echoed in the survey as 69 per cent of respondents blamed market volatility as the reason why their investment returns fell below expectations.

Meanwhile, almost all other asset classes suffered a challenging year as a range of fears over a global trade war, economic slowdown and fluctuating oil prices concerned investment markets.

While people’s expectations are still very positive, they have lowered since 2017 when 28 per cent of respondents expected to achieve over 10 per cent in returns for 2018. Despite this drop, over 10 per cent returns was still the most popular category among respondents.

“A positive outlook is typically a positive trait to have. However, in the world of investment, it should be tempered with a realistic outlook, especially considering how volatile the market place is at present," said Paul Evans, Head of Region, Middle East & Africa, Old Mutual International.

“Some people might see a sharp drop in the value of their investments and decide that they want to cut and run because their positive outlook has been shattered. However, if they have taken financial advice, their adviser should explain that staying locked in for the long-term can ultimately get better returns.”

“We know from experience that patient investors can expect to realise capital growth as a reward for time in the market and long-term investment. However, investors still need to be prepared for the fact that over the course of their investment journey, there will be ups and downs. This research suggests that many investors hold optimistic expectations for investment returns in the near-term," said Danny Knight, Investment Director at Quilter Investors.

“This can place them at risk of losing sight of their long-term objectives if their near-term expectations are not met. The volatility we saw in 2018 is normal and even slightly below the historical average, but it is much more pronounced than investors have become used to since the financial crash. We caution that investors may be at risk of recency bias, whereby a ten year bull run has clouded expectation and left investors with unrealistic expectations.

“An important tool for managing expectations and helping investors stay true to their long-term goals through all market conditions can be the use of risk targeting in investment portfolios. This gives investors confidence and reassurance about how their portfolio can be expected to behave under various market conditions, and what level of volatility they can expect to experience during their investment journey. Now more than ever, it is crucial that investors have realistic risk and return expectations and choose a portfolio which is carefully managed according to their own expectations.

“While global markets remain fundamentally sound and we believe there are still growth opportunities available for skilled managers, it would be fair to take a measured view on expected returns for this year. The important thing to remember in these moments is that investing is a long-term game. Rallies often follow periods of volatility or decline, and even if markets underwhelm in the near-term, the only way to capture the corresponding upturn is to remain invested.”


TAGS : Markets

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