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A November 2011 survey of financial professionals predicts a somber outlook for 2012.

Each year, a worldwide sample of Chartered Financial Analysts (CFAs) are invited to participate in a Global Market Sentiment Survey. As the title suggests, the survey looks at “market sentiment, performance, and market integrity issues in 2012.”

The survey also provides predictions on growth in the global finance profession.

The report makes for interesting reading.

Although I did not participate in this years survey, I share many of the findings. 

Not surprising, because as the old saying goes, great minds think alike. I shall ignore the last half of the adage, that fools seldom differ.

Some of the highlights:

Market Performance

59% of respondents globally predict that asset classes other than equities will be top performers in 2012. U.S. respondents are outliers, with a majority predicting global equity markets to be top performers. Weak economic conditions and the overhang of perceived systemic risks may contribute to poor expected returns for risk assets like equities.

It is interesting that U.S. respondents differ from their international peers on this point.

I am quite cautious on global equities in the near-term as well. There is too much uncertainty around the world. Substantial deficit spending in many key countries, the monetary crisis in Europe, weak economic growth projections, political instability, are a few of the issues causing problems today.

Until these issues are resolved, there will be continued volatility.

For a little more information on systematic risks, please check here.

In APAC, however, an equal proportion of members believe precious metals will have the highest return.

Not a surprise on the precious metals. With concern over currencies, the fear of inflation, investors often turn to hard assets.

Economic Conditions

Local respondents in BRIC countries (especially in Brazil, India, and also in Australia – whose economy is largely tied to the BRICs through commodities) overwhelmingly predict economic expansion in their home markets in 2012. The outlook is much different in Europe, where 85% or more of local respondents in key countries (France, UK, Switzerland) see no prospect of economic growth in the coming year.

Worth noting here, is how countries with close economic ties to other countries share similar fates. Australia and the BRICs (Brazil, Russia, India, China). Same with Canada and the U.S., Switzerland and the Eurozone countries, etc.

Three-quarters of respondents see no improvement in the current sovereign crisis in 2012. Sentiment is fairly uniform across the globe in this respect.

If anything, I am a little surprised that only 75% see no improvement. I have yet to speak with anyone who believes the situation will materially improve.

The biggest perceived risk to global capital markets in 2012 according to members is “Systemic Disruptions” followed by “Weak economic conditions” and “Political Instability”. The biggest perceived risk to local capital markets according to members is “Weak economic conditions”.

To some extent, these conditions are linked. There are a variety of systematic risks that can impact the markets.

Market Trust

Most respondents feel that the impact of the global financial crisis on market trust and confidence will persist for another 3-5 years, similar to the sentiment expressed last year. But only 25% predict continued fallout beyond 5 years, down modestly from 32% who expressed that view last year.

The survey sees this as improving sentiment. A view I do not share. It is easy to say that 5 years from now, there will be improved trust and confidence in the markets. But all you need is another Enron or MF Global to occur and the level of trust will fall. And these events are hard to predict.

The most serious issue facing global markets for 2012 is “mis-selling of products by financial advisers” followed closely by derivatives.

I fully agree that mis-selling is a big concern. There are two key areas where this can occur.

The problem may arise due to a lack of competence on behalf of the financial professional. Who does not properly understand the client’s objectives and the available solutions. Then erroneously puts the client into inappropriate solutions.

Or the financial professional may put his or her needs ahead of the client. This includes selling products that yield the highest commission to the advisor, churning client accounts to generate higher transaction fees, etc.

As a client, ensure that you deal with knowledgeable financial professionals. And understand how they generate their revenue stream. Make sure it is compatible with your needs.

Employment Opportunities in Finance

A larger proportion of members in APAC (23%) expect employment opportunities to increase than those in AMER (13%) and EMEA (8%). Majority of members in EMEA (55%) expect employment opportunities to decrease. Globally, half of members expect employment opportunities to stay about the same.

Globally, the job market for finance professionals is expected to remain flat.

The best possibility for job growth is anticipated in the Asia/Pacific region, with China and India leading the way. Employment is also expected to grow in the Middle East, Latin America and Brazil in 2012.

The worst opportunities appear to be in Europe. Japan projects flat as well.

All in all an interesting survey as to what finance professionals think about the markets in 2012.

It is not a guarantee as to future events. But it is well worth your time as an investor to take a read through the report.

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