High Net worth Investors still Risk Averse

A report by the Economist Intelligence Unit and released by Barclays Wealth on Monday suggests that high net worth investors (HNIs) across the world are not yet ready to take on more risk after all the talk of “green shoots” of recovery . The report which surveyed 2,100 HNIs from across key markets, found that while nine out of 10 HNIs globally do believe that the current markets offer buying opportunities, the majority of them were reluctant to act on this view.

The survey was done between March and May 2009. Investors in India were among the more risk-averse, with about 69 per cent of the respondents sticking to the view that despite opportunities, the risk of price falls was still too high for them to consider taking the plunge into the market. Though an increase in risk appetite is the reason most often cited for the ongoing rally in emerging market stocks, Barclays found that the majority of investors did not want to peg up allocation to riskier assets over the next 12 months. They instead preferred status quo on their portfolio.

“This widespread sense of caution and risk aversion highlights the extent to which wealthy investors have been chastened by the events of recent months and suggests that it may be some time before confidence returns to the market,” observes the report. Only 16 per cent of the wealthy in India, for instance, said they were willing to take higher risk in their portfolio over the next year. Besides preferring status quo, investors also showed a marked preference for straight-forward investments that they knew, such as cash, real-estate, government bonds and stocks of their own country.

The findings show that globally, real-estate was the asset class where the maximum number of respondents (25 per cent) wanted to increase exposure, followed by government bonds (22 per cent) and commodities (21 per cent). In India, 18 per cent of respondents wanted to increase allocation to real-estate next year, compared to 17 per cent who wanted to increase allocation to stocks or cash. Concluding, the report likens the current situation to a mirror image of irrational exuberance. Just as market gains make people more optimistic about the future, a meltdown like the one we saw last year may make them too pessimistic. “Just as during a boom, investors can mistakenly extrapolate a trend of rising prices, so in a downturn they can expect a continuation of falling prices — only to delay re-entering the market and find that they have missed the turn in the cycle,” it observes.