The world’s richest are bracing for a potential market meltdown. A majority of wealthy investors anticipate a substantial drop in the market before the end of 2020.
What steps are these investors taking to prepare for the drop? According to a survey conducted by UBS Wealth Management, these investors hold approximately 25% their portfolio assets in cash.
More than half (55%) of respondents believe there will be a significant sell-off before the end of 2020 and half might increase their cash positions even further.
Additionally, four-fifths of those responding indicate that volatility in the market is highly likely to increase next year. The same survey conducted last May revealed that cash comprised and even higher amount, 32%, of total assets.
Some investors however, are not so gloomy and believe such high cash positions could prove detrimental to overall returns in 2020 and beyond.
Morgan Stanley published its economic and market outlook for 2020. While its report does anticipate slightly lower market returns, it also forecasts a rebound in economic growth.
Both factors would seem to indicate that the concerns of the world’s wealthy are exaggerated or unwarranted.
Contrarians
Morgan Stanley expects that trade tensions with China will ease in the coming year, eliminating uncertainty that has plagued some businesses plans for capital spending.
The bank’s estimate for 2010 is for 3.2% growth in gross domestic product — an increase over the 3.0% rate for 2019. These numbers are at odds with some rich investors pessimistic assumptions about the direction of the stock market.
Morgan Stanley’s analysts are adopting a neutral position concerning stock markets next year. The analysts recommend an underweight position in U.S. equities next year, not because they believe a selloff is imminent but because the U.S. market is richly valued.
Morgan Stanley’s target for the S&P 500 is a 3% decline from 2019. The firm believes that foreign market’s will increase in value next year, with a forecast of a 4% rise in the MSCI Europe index.
In short, the fears of wealthy investors, based on expectations for a precipitous and severe market decline, seem unfounded. Maintaining inordinately high cash positions could prove inimical for a sound diversified investment strategy.
