Investors see a bear, CFAs say

Sixty-five per cent of Canadian chartered financial analysts (CFAs) have described investor sentiment as decidedly bearish this RRSP season, according to a new poll.

The poll of 1,770 CFAs — conducted for Business News Network — found that another 32% thought investor sentiment was flat and only 3% reported their clients were bullish on RRSP investments. Respondents identified market volatility, uncertainty and the fortunes of the U.S. economy as the main reasons for investor worry.

“Individuals are unsure in which direction to turn. There are no returns from GICs and fixed income; equities are so volatile it is making it very difficult to make comfortable investment decisions,” one CFA responded in the comments section of the survey. “Personal investing isn’t as much fun as it used to be.”

Another CFA said investors are afraid because there is a sense that problems in the credit markets could get worse before they get better: “I cannot be sure, but it is likely that the economic downturn much of the world is experiencing — and will be reflected in corporate profit declines for some time — is not fully discounted in share prices and that any share buys now could be a mistake,” the CFA wrote.

Jeff Young, a CFA and vice-president of investments for NexGen Financial, says the survey shouldn’t necessarily be viewed as what CFAs think about the current investing climate as much as what they are hearing from their clients.

Having said that, he says, there is a lot to worry about right now.

“In the current environment, there are a lot of issues out there, particularly in the financial sector. People are worried about land mines on balance sheets and how to properly value a lot of bank holdings,” he says. “When you run into a problem where banks have capital issues, you tend to see a tightening in lending. Lending is integral to growth in the overall economy. I think it’s with good reason people are bearish on the economy.”

Young says the recognition that there is a problem in the financial markets has spurred central banks into action to fix the problems, but he’s not sure if we’ve seen the bottom of the financial sector’s credit woes yet.

“From a market perspective, the central banks in Canada and the U.S are aware of the problems and have conducted very aggressive cutting to try to get ahead of the curve,” he says. “If we could get some resolution on the financial sector, then I think people would be a lot more comfortable. It’s worrying for people when they see a write-down here, followed by another write-down there.”

Cautious sentiment has not yet forced CFAs to advocate moving away from equities.

More than two-thirds of respondents (67.7%) say that investors should favour equities over other asset classes — although it should be noted that a number of respondents felt that this question was too broad and that an asset class suggestion should correspond to the specific needs of an investor.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com