More than half of the world’s wealthiest investors are preparing for a drop in financial markets before the end of next year, according to UBS Global Wealth Management.
Investors are cautious about geopolitical risks as they reposition their portfolios into the new year. Among the most widely perceived risks for investors: the long-simmering trade dispute between the U.S. and China and the upcoming presidential election in 2020.
About 55% of respondents said they expect that there will be a “significant drop” in the markets before the end of 2020, UBS said.
Wary investors are making preparations for potential turbulence. About 25% of their average assets are in cash, the bank said, even as stocks push to record highs.
More gyrations could be on the horizon. Roughly 79% of respondents said they think markets are moving toward a period of higher volatility, according to the survey of more than 3,400 high-net-worth individuals.
“The rapidly changing geopolitical environment is the biggest concern for investors around the world,” Paula Polito, client strategy officer at UBS Global Wealth Management, said in a statement. “They see global interconnectivity and reverberations of change impacting their portfolios more than traditional business fundamentals, a marked change from the past.”
The survey, which was conducted between August and October, comes on the heels of a volatile third quarter, with stocks tumbling in August on recession fears. Investors yanked about $60 billion out of stock funds in the third quarter, the largest net outflows for a quarter since 2009, according to Morningstar data on U.S. mutual funds and exchange-traded funds.
To be sure, recent signs have pointed to a firming U.S. economy in the fourth quarter. A strong U.S. labor market, robust consumer spending and an improving housing sector have helped ease concerns about a slowdown in domestic growth. Meanwhile, optimism has returned to Wall Street on signs of progress in the trade talks with China, better-than-expected third-quarter earnings and a supportive interest-rate policy from the Federal Reserve.
Those positive trends are enticing some investors to take more risks.
With stocks hovering around all-time highs, the fear of missing out is growing. Cash levels fell from 5% last month to 4.2% in November, the biggest monthly drop since the presidential election in November 2016, according to Bank of America Merrill Lynch’s monthly survey of global fund managers.
Adrian Lowcock, head of personal investing at investment platform Willis Owen, said in a note that fund managers putting their investors’ money to work is a sign that the bull market is still humming along.
While a global downturn might not be on the horizon in the near term, Lowcock said that investors should “bear in mind that the later stages of a bull market are usually characterized by investors getting involved on the fear of missing out.”
