Expat investors: Standing firm against market volatility

Instability in the financial markets has dented appetite for risk among expat investors, a survey by Lloyds TSB International revealed today.

• Over a third (40 percent) of expat investors are concerned about swings in the financial markets; up from 36 percent last year;
• But most are resisting the temptation to chop and change their investments as only one in five (21 percent) made frequent changes to their portfolios in the last two years;
• Perceived lack of opportunity elsewhere is holding investors back; 39 percent cite this as main reason for reducing number of investment changes.

As Ian Martin, Head of International Advisory at Lloyds TSB International said: “While investors might be concerned that they aren’t seeing as many opportunities outside of their current portfolio, making fewer changes to their investments can be a sound approach in the current market.

“While the global indices remain in a state of flux it is often very difficult to predict in which direction the markets will move, and therefore longer term asset allocation picks have been key. The fact that currency weakness in local markets also ranks highly as a concern underlines the particularly unique situation that expat investors are in.”

The research into the investment habits of 714 expat investors demonstrated an increasing reluctance to speculate on new investments and one of the main concerns to emerge has been around market volatility.

Of those surveyed, 40 percent cite market volatility as being one of their main investment concerns; more than any other factor, except currency weakness in their local market. This is a further increase on last year, when 36 percent were expressing concerns about market volatility, and shows the significant extent to which financial instability has impacted their outlook and appetite for risk.

“For this group of investors who are concerned about a weak local currency, the risk of making frequent changes is compounded by the fact that they could face greater potential currency-related losses if the market dips unexpectedly,” Mr Martin said.

Sensibly, expat investors continue to be cautious about altering their asset allocation. The number of investors who say they make regular changes to their portfolio has fallen from more than a quarter (27 percent) in 2012 to a fifth (21 percent) in 2013. Among UK-resident investors, the figure was 26 percent for 2013. Over half of those surveyed (53 percent) have made no changes to their investments whatsoever in the last six months.

Over a third of investors (39 percent) say that they have been discouraged by a perceived lack of opportunity elsewhere, with this topping the list of reasons investors gave for why they have reduced the number of changes they made to their investments.

This was followed by increased levels of stability in their own personal financial circumstances (28 percent), meaning that they have not had to adjust their investments accordingly. Significantly however, almost a quarter (25 percent) said that they were learning to control knee-jerk reactions to market volatility.

“It’s interesting to see the extent to which investors have learnt to ride-out the storm. In the face of today’s yo-yo recovery, the benefits of this strategy are clear. Investors who reacted to every market shock may well have lost out as the markets rebounded,” Mr Martin said.

Contributed by Lloyds TSB International.

*All figures, unless otherwise stated, are from a survey of 714 British expat private investors based in 14 popular expat destinations. The places involved are Australia, Canada, France, Germany, Hong Kong, New Zealand, South Africa, Switzerland, Spain, Jersey, Guernsey, the Isle of Man, UAE and the USA. The research was conducted online in May 2013 by Freshminds on behalf of Lloyds TSB International.