The highest inflation in decades — and the Federal Reserve's looming campaign to hike interest rates in order to stem those price pressures — are top investor concerns in 2022, according to findings by UBS released on Tuesday.
UBS Global Wealth Management’s quarterly sentiment survey, which polled over 3,000 investors and 1,200 business owners across 15 markets, found that soaring prices, a volatile market and foreign policy are important concerns to wealthy investors.
According to the findings, a majority expect inflation will last longer than 12 months, while 48% are concerned about the market downturn.
“There's some caution on the part of investors, but they haven't panicked and they remain engaged," Jeff Scott, UBS' head of client insights, told Yahoo Finance in an interview.
He added that "partly due to the inflationary environment there's many that are looking for opportunities to invest in the market now on any dips that they see,” Scott added.
To that point, investors are considering portfolio changes as 39% added stocks, while 36% added portfolio hedges and 35% reduced cash.
Even so, investors are putting their cash to work, 61% have more than 10% of their portfolio in cash and of those 56% are concerned about the impact of inflation on cash value. Meanwhile, 41% are waiting for the right opportunity to invest.
“We clearly see clients having a lot of cash still in hand, which in an inflationary environment, that's just locking in your losses,” Jason Draho, UBS' head of asset allocation Americas, explained to Yahoo Finance.
“If you don't put that money to work in some capacity, we still think there's more upside in the more cyclical value oriented parts in the equity markets in the U.S. and globally," Draho added.
Fed fears percolate, but optimism rises
Meanwhile, investors have been jittery over a newly hawkish Fed that's poised to start hiking rates as early as next month. Some are taking advantage of the low rates, with UBS finding 42% plan to refinance an existing mortgage, while 41% may borrow against a security-backed loan, and 41% will get a new mortgage.
Even amid stubborn inflation, U.S. investors want the administration to focus on specific priorities, the survey shows. More than 80% are watching how the administration will control inflation and COVID-19 as the Omicron variant wanes, and policies shift from emergency to endemicity.
UBS found that 54% of investors said they are optimistic about the economy recovering in the next 12 months, compared to 34% who are pessimistic about it.
However, expectations about the stock market for next six months have fallen, with 54% of investors said they are optimistic compared to 24% who are pessimistic. The Fed's rate hikes are expected to slow growth, and act as a curb on earnings growth.
Still, U.S. business owners surveyed continue to have a positive outlook toward the future, with 78% having an optimistic view about their business for the next 12 months.
Even as employers continue to struggle to find enough workers, 41% of owners polled by UBS plan to hire new employees, while 47% of businesses will keep the same workforce. Meanwhile, only 12% plan to downsize.
“From the business owner or the economy side, economic activity is quite strong, it's going to probably re-accelerate as the wave starts to dissipate,” Draho said, with businesses still coping with "strong demand. And then they're figuring like, how do we, can we meet that demand?”
Along those lines, 66% of business owners are concerned about supply chain issues, UBS found, while 64% have said they are worried about rising material costs. Meanwhile, 63% of operators are concerned about tax increases, while 62% are worried about wage inflation.
“There's some noise, there's some challenges, but [owners] feel strong about their business, that they know that they can control their business,” James Jack, executive director, Head of Business Owners Client Segment at UBS, told Yahoo.
“They know they just got through a pandemic and there's some great opportunities for them, but they just have to kind of keep their eye on the ball," he added.
Yet, many business owners plan to sell or pass on their business in the next 5 years, 42% have said in less than 5 years, compared to 31% who said in more than 6 years.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv
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