Volatility brings out extremes in behaviour

A clear divide has surfaced in the behaviour of wealthy investors in emerging and developed markets as concerns over the global economic downturn continue to persist, according to a report from Barclays Wealth and the Economist Intelligence Unit (EIU).

The report, entitled ôBreaking the Mould: A question of personalityö, notes that investor behaviour has become exaggerated during the upheaval in financial markets as they seek to protect their capital against swings in asset prices or profit from uncertainty. Some investors respond by spending more time analysing their portfolios, increasing risk in their portfolio or changing allocation to cash.

The findings, based on a global survey of 2,300 high-net worth individuals, reinforces the need for the financial services industry to take a more scientific approach to understanding the behavioural and personality traits that drive investorsÆ decisions, Barclays says.

Survey respondents from emerging markets, including China (41%) and India (40%), say they are more likely to increase the level of risk in their portfolios during volatile times. This shows they regard the current environment as one of opportunity, rather than a hindrance.

In contrast, the survey results suggest that high-net-worth investors in developed markets such as Italy (27%), the UK (29%) and Spain (29%) are among the least likely to increase the level of risk in their portfolios and are applying increased caution to their investments during market volatility.

Investors in Hong Kong fall between respondents from emerging markets and developed markets, with 34% likely to increase the level of risk in their portfolios.

Didier von Daeniken, CEO at Barclays Wealth Asia-Pacific says the market volatility has led to a wide divergence in reactions and attitude.

ôIt is critical at these times that we fully understand our clients and offer appropriate counsel to each client with their distinct profiles and investment attitudes,ö he says.

More than half (51%) of investors say that they plan to analyse their portfolio on a more regular basis and a further 51% are more likely to monitor a specific investment on a daily or weekly basis, rather than the performance of their overall portfolio (41%). In their search for the best result, investors are also more inclined to undertake increased trading, with more than a third (39%) expecting to intensify the amount of times they trade in the stock market.

To lose sight of the overall portfolio and focus on individual assets may be damaging to the investor, but can also contribute to market uncertainty, says von Daeniken.

ôA successful investment strategy revolves around time in the market rather than trying to time the market,ö he says. ôBooms and busts will come and go with every bull and bear market; however long-term financial goals are achieved through a consistently executed approach over a reasonable horizon.ö

In Hong Kong, the majority of the male respondents turn to peer groups and media (both over 40%) for investment advice, followed by private bank advisers (37%). In contrast, 46% of Hong Kong female respondents turn to their peers, with 24% of Hong Kong women respondents relying on media sources as an important channel of investment advice and 20% turning to their private bank advisers.

This latest report is the sixth instalment in a series on investor behaviour launched in December 2006. Barclays Wealth has again partnered with the EIU to examine the choices that wealthy investors make. It is based on two main strands of research: a global survey of more than 2,300 mass-affluent (with up to ú1 million in investable assets), high-net-worth (with up to ú10million in investable assets) and ultra-high-net-worth individuals (with up to and in excess of ú30 million in investable assets) and a series of in-depth interviews with experts on wealth and investment behaviour.

Respondents were spread across a number of key international markets, with the highest numbers of respondents from the US, India, the UK, Singapore, Hong Kong, Canada, Switzerland, Spain, the UAE and Monaco. The survey took place between March and April 2008.