The results from the latest Barings Investment Barometer survey have indicated that concern over the eurozone debt crisis has significantly increased since the last quarterly survey with European equities subsequently falling out of favour.
The survey, which explores intermediaries' attitudes towards the current economic environment and their views on major asset classes, found that 89% cite the eurozone crisis as the biggest global macroeconomic challenge facing investors.
This is up from 78% in the last quarterly survey.
Indeed as the year has progressed, Barings has witnessed a deterioration in economic sentiment. Furthermore, over half (58%) of investment professionals now say they are unfavourable towards European equities up (32% in the last survey).
Fears of a ‘double dip' recession have also increased since the last survey, with 28% citing this as one of the biggest global challenges for the next six months, compared to nearly half this number in the previous quarter (15%).
As well as this, the prospect of a second banking crisis is now cited by nearly two thirds (61%) of investment professionals as a prominent challenge facing investors, compared to 41% questioned in the summer.
Positive sentiment towards emerging market equities and fixed income increases
Barings' Investment Barometer reveals that emerging market equities are back in the top spot as the most favoured asset class, with 93% of investment professionals favourable towards them.
Also, 44% are advising clients to increase exposure to the asset class. The next most favoured is Asian ex-Japan equities (90%), followed by global equities (84%).
Favourability towards gold has decreased by 12% since the last survey (59% from 71% saying they are favourable) and European equities have seen a drop in favourability from 69% to 42%.
In line with the last survey, around two thirds (67%) are favourable towards fixed income with 21% advising an increase in exposure (up from 14%).
Inflation still a concern
Exploring attitudes towards inflation, the Barometer has highlighted that there is still significant worry about the impact of inflation on cash investments with 82% saying their clients are concerned.
Equal to the last survey, 70% of respondents were negative on cash as an asset class, however fewer said their clients have already, or plan to, reallocate cash investment to inflation-protected assets (74% compared to 89% last quarter).
This is perhaps an indication that market volatility is putting some investors off investing their cash in equities, inflation-linked bonds or property.
Diversification of assets seen as key to protecting against market volatility
As with the previous surveys this year, the latest results show that advisers are still most likely to encourage their clients to diversify their assets in order to navigate the current levels of market volatility (63%).
This is followed by focusing on identifying growth opportunities (43%).
There is also a strengthening trend towards more clients being advised to de-risk their portfolios (41%, up from 34% in Q32 and 27% in Q24), which reflects the growing macroeconomic concerns investors are facing.
Rod Aldridge, Head of UK Retail Distribution at Barings, comments:
"The eurozone crisis is clearly rooted in the consciousness of investment advisers. This uncertainty is having an impact on their decisions as they exercise caution and encourage diversification of assets and de-risking.
"In the search for growth, our survey shows emerging markets are front of mind for many investors, which is testament to the compelling opportunities that these markets continue to offer. However, as caution prevails, fixed income also remains popular.
"More than ever, the benefits of a balanced approach are clear."
