The outbreak of the coronavirus pandemic has shaken the global economy. The uncertainty of what will come and for how long the pandemic will go on spooked investors, which severely impacted the global financial markets. Uncertain economic times often trigger investors to sell their shares or to wait with planned investments, and some of the most important stock market indexes fell markedly. The volatility caused by the crisis further led to changes in many investors’ perceptions and behaviors.
How did investors respond to the pandemic?
As the pandemic went on during 2020, investors started to lose optimism in the future of the market. The declining optimism was clear in the changed willingness to take risks by investors worldwide, as a larger share moved significant or some proportion of their portfolios to lower risk investments or moved them into cash, as a response to the uncertain future. Most people with investments did changes to their portfolio when the crisis became clear, but not all reacted in the same way: some investors reacted in the opposite direction and moved some or a larger proportion of their portfolio to higher risk investments. Younger investors seemed to react stronger to the crisis than older generations, as most investors belonging to the silent generation kept the same level of risk in their portfolio despite the coronavirus outbreak, while only a smaller share of millennials did.
Are investors optimistic about the future?
Expectations about the future varied between regions, genders, and investor types. The share of institutional investors who expected an annual average return of 10 percent or more over the next five years halved in 2020 compared to previous years. Meanwhile, the expectations from individual investors were more varied depending on their region: European investors seemed to be least optimistic about future returns over the next five years, while investors in the Americas seemed to be the most optimistic. Investors in the Americas expected an annual average return of over 13 percent. Future stock market expectations also varied between the genders, as a much lower share of women than men in the United States stated to be optimistic about the stock market trajectory in 2021.
