Survey: Professional Investors Losing Confidence in the Market

Friday, 24 Aug 2012 11:08 AM

By Michael Kling

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Most professional investors have lost confidence in the stock market, a new survey by TABB Group reveals.

Only 2 percent of professional investors surveyed rate their confidence in the market as very high, down from 12 percent in May 2010, while 26 percent rate their confidence as very weak, also up from 12 percent, according to the survey titled The Sky is Falling.

"We believe that this erosion in confidence has been due to tough market conditions, declining market volumes, the Pipeline Trading scandal and more recently, botched [initial public offerings]," Adam Sussman, TABB Group partner and research director, writes in the report.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

Investors are concerned that "the cracks in the system exposed during the Flash Crash and the recent rash of technology-specific issues exposes the industry to unacceptable risks," he writes, noting the survey was done in the wake of the bungled Facebook IPO.

The survey, skewed to institutional investors, shows that most respondents believe the Knight trading problem will have medium impact on market-structure confidence in the long term, but few think it will have no impact at all.

"My conclusion is that Knight's issue was like removing the fatal block during a game of Jenga!" Sussman writes. "If it occurred earlier, no one would have noticed."

The buy side is the least confident: 50 percent have weak or very weak confidence in the market, Sussman says. The buy side has long been unhappy about lack of transparency in order-routing practices and has recently become concerned about the impact of exchange-traded funds and other index products.

Although confidence has dropped, over half the investors have not changed their investments.

Despite talk of a lack of confidence, the Standard & Poor’s 500 Index is up 11 percent so far this year, notes Stephen Gandal, senior editor of Fortune magazine. "Yes, on light volume. But for the market to be up that much, someone must be putting more money in."

People lack confidence in stocks because they have not consistently increased, Gandal says. When stocks do go up, investors will pile in.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible


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