As 2020 drew to a close, optimism about the year ahead was tangible, with expectations for economic recovery amid the broad rollout of vaccines. In December, we conducted our second quarterly survey of 2,500 investors in Australia, Hong Kong, Singapore, Taiwan, and Japan to gauge sentiment in these challenging times.
Despite a surge of optimism among the respondents about the macroeconomic outlook and their portfolio expectations for the coming 12 months, investors had rising concerns about their personal finances.
Despite rising optimism, Asia-Pacific investors remain concerned
Our 3Q survey saw a marked disparity between investors’ optimistic expectations for growth in their portfolios and their much gloomier outlook for local, regional and global economies. This has now narrowed: Macroeconomic outlooks that were net negative turned sharply positive at year-end. However, investors still tend to be more optimistic about their own investments than the economy in general.
In the 3Q survey, 47% of investors expected the COVID-19 pandemic to have a negative impact on their portfolios over the next 12 months. In the latest poll, however, almost as many said the pandemic will likely be positive (37%) as negative (38%).
Despite Asia-Pacific investors’ rising optimism about the macroeconomic environment, over 70% of respondents said they were just as concerned, or even more concerned, about a variety of broader or longer-term financial issues (such a job security and retirement savings) than they were following the first wave of the pandemic in mid-2020. Only around a quarter of respondents say they were less concerned than they were six months ago.
While there is no simple explanation for the paradox between this pessimism and the optimism exhibited in other responses, investors should be wary of succumbing to various biases that might affect their decision-making, especially in times of volatility.
COVID-19 has boosted investors’ self-confidence
In a reversal from the previous quarter, more respondents (39%) said that the pandemic is likely to enhance their confidence in their investment decision-making than say it is likely to make them lose confidence (32%). This may reflect the persistent disconnect between high asset valuations and macro data, but it may also be a sign of biases that can lead investors to overestimate their own abilities. For instance, as with the previous quarter, there was a notable generational disparity in responses. Younger investors are still much more likely (55%) to always or often trust their own experience when investing than older ones (43%). However, they are also more likely to trust in professional advice than their older counterparts.
Overall, compared to the previous quarter, there was a slight increase in the percentage of those who say they “always” or “often” trust professional investment advice, perhaps suggesting that the turmoil of the past year has reinforced the value of professional insights.
Rising interest in active management, but investors no more likely to reallocate
The 4Q survey saw a 5 percentage point increase in the number of investors seeking to allocate more to active strategies, with 51% of respondents across the region intending to allocate more to active in the coming three months. Despite their stated intention and an improved macroeconomic outlook, there was no significant increase in investors’ plans to realign portfolios. In 4Q, 44% of respondents said they planned to significantly rebalance their portfolios in the next three months, up just two points from the previous quarter.
Recognising potential biases in our behaviour can make us better investors
Our survey results imply inconsistencies between how investors say they will react and how they do act. We all have biases that influence the decisions we make and can lead us to act in ways that are inconsistent with our more rational beliefs. Whether this means investors play it safe and fail to take advantages of opportunities, or whether overconfidence leads them to take on more risk than they intend, it underlines the importance of being aware of possible biases that may affect decision-making. While it’s nearly impossible to be completely unbiased when making investment decisions, investors can lessen the impact by identifying the biases they are most apt to fall back on and employing strategies to help overcome them.
For greater detail on the survey findings and the results for your country, along with resources on behavioral science and common cognitive and emotional biases, visit our PIMCO APAC Investor Sentiment Survey homepage.