Legg Mason's MD talks of Singaporeans' ‘intriguing' investment behaviours

Lennie Lim reveals that one in five Singaporeans invest in things they don’t understand.

Singapore has the most number of investors tapping financial advisory services yet 1 in 5 invest without proper understanding, says study.

The 2017 Legg Mason Global Investment Survey reveals that 21% of Singapore investors regret becoming ambitious and investing in things they don't understand. This is particularly intriguing, given that Singapore boasts the highest proportion of investors in the world who currently use the services of a professional financial advisor at 61%.

To understand the irony, Singapore Business Review caught up with Lennie Lim, regional head for Asia and managing director of Legg Mason. He also shared more insights on the key findings of the study as well as recent investment themes that investors should look out for in 2H 2017.

The Legg Mason Global Investment Survey has been taking the pulse of investors worldwide for the past five years. Its goal is to better understand investors' hopes and fears, their financial dreams and realities, as well as what is influencing their behaviour — from the Global Financial Crisis to changing technology.

In Singapore, some of the key findings are as follows:
· Singaporeans prioritise work over home goals – Singapore is the highest in the world in terms of the number of people who want to start a business or work for themselves
· Singaporeans are global leaders in prioritising retirement goals
· Local investors, while generally conservative, are looking to add more risk in the coming 12 months
· Asia investors identified two key sources of uncertainty: US foreign policy and US Federal Reserve interest rate decisions
· Asia investors see greatest opportunities in the US and China in the coming year
· Overall, more investors in Singapore use professional financial advisors than anywhere in the world even though the survey shows that Singapore investors have a high degree of financial market knowledge

SBR: What are the key work, home, and retirement goals amongst Singaporeans? Does GIS deliver particular insights about millennial investors’ goals in Singapore?

The Global Investment Survey (GIS) tells us that Singaporeans prioritise earning power among the key work goals that they have are looking to achieve. In fact, they rank among the highest in the world in doing so. For example, the majority of respondents indicate that the goals they are looking to achieve include earning as much money as they can (67%) and changing jobs regularly to make more money (56%). According to the survey, millennials are more likely to prioritise earning power than their baby boomer counterparts, suggesting that the older an employee gets, the less likely they are to switch firms.

Singaporeans also lead much of the world in retirement goals they are looking to achieve. Chief among these are their desire to enjoy a good retirement income, to retire early and to maintain their standard of living following retirement – they rank second globally in all three categories. At the same time, 68% want to travel extensively and 67% to have a holiday home after they leave the workforce.

Asians are known to place a lot of emphasis on familial ties, and Singapore is no exception. Around 68% say they want to have enough money to help with the expenses of their grandchildren after retiring, the second highest globally for this category.

Singapore investors could face challenges achieving these relatively aggressive goals if they stay on the side-lines of capital market and continue to hold 38.5% of their assets in cash. It’s important to stay invested. In this regard, millennials are the bigger risk takers: 61% would like to take on more risk in their investment portfolio in the next 12 months compared to 34% of baby boomers.

SBR: What do Singaporean investors worry about when thinking about their investments? How do these concerns compare with those of their regional peers?

Roughly one decade since the Global Financial Crisis, we know that the fallout continues to affect investor behaviour globally. Singaporeans are no exception. About 60% of Singapore investors – well above the global average of 56% – say the crisis still influences the way they plan financially. This is consistent with the trend across Asia: a higher-than-average 58% of Asia (ex-Japan) respondents said that the crash still has an impact on their financial planning.

Amongst their key investment concerns, Singaporeans point to global and domestic factors. For instance, Singapore is one of only four markets globally to identify unemployment as a top-three concern, the other two being economic global economic instability and inflation. While concerns over global growth are often blamed for worries about unemployment, the more likely reason is a 2016 spike in Singapore’s resident unemployment rate to the highest level it has reached since 2010.

SBR: What did you learn about Singaporean’s investment returns and the investment decisions that they regret? What are their recommendations for supporting the local economy and capital markets?

Many Singapore investors regret having gotten market timing wrong (27%) and becoming too ambitious and investing in things they don't understand (21%). The latter is particularly intriguing, given that Singapore boasts the highest proportion of investors in the world who currently use the services of a professional financial advisor (61%).

The net result of these missteps is that Singaporeans reported a 1.86% gap between the return on income-producing investments they are targeting (7.02%) and the return they are actually getting (5.16%). This gap is slightly below the Asia (ex-Japan) average of 2.41%, but still represents a sizable difference and is not helped by investors’ risk-averse asset allocation.

Against this backdrop, Singapore investors shared some suggestions on what could be done to support the local economy and boost local stock and bond markets. These include investment in new growth industries, investing in traditional sectors and potentially managing the local economy via interest rates rather than exchange rates. These suggestions reveal a community of investors who are highly knowledgeable about the economy and capital markets.

SBR: Do your findings highlight any particular investment behaviours among Singapore investors?

Singapore investors have some of the most conservative attitudes in the world in terms of investments, with 74% identifying themselves as “somewhat” or “very” conservative investors. At the same time, Singapore investors are generally lacking in optimism, with net optimism among the lowest in Asia at 9%. This may be linked to the fact that majority still feel affected by the financial crisis.

This finding corresponds with the fact that the largest group of Singapore investors identify themselves as “strivers”, accounting for 44% of respondents. Strivers are investors who live for today but would like to plan more for tomorrow. This suggests there could be a degree of pent-up investment demand as Singapore investors want to invest more but feel held back.

The irony here is that Singapore investors are highly knowledgeable about local and international markets. As indicated earlier, more Singapore investors work with a professional financial advisor than anywhere in the world. Despite this, cash remains the largest allocation within Singaporean investor portfolios.

SBR: How can Singapore investors change their investment approaches to help meet their ambitious goals?

Investors can start by reviewing their investment portfolios and asking themselves tough questions about whether their asset allocation aligns with their long-term investment goals. One mismatch that they are likely to identify is that their cash positions compromise their abilities to meet ambitious goals – after all, even cash is not risk free, with inflation eating away at its real value every year.

One response could be for investors to move a portion of their cash to higher-risk and potentially higher-return assets such as equities and fixed income. When doing so, they should keep in mind that diversified asset allocation is a must, while market timing is generally considered to be an unwinnable game. In our view, the best avenue for investors looking to boost their investment returns is to educate themselves on available options, which may involve actively managed mutual funds and active exchange-traded funds (ETF).