Nearly seven out of 10 investors had confidence in the U.S. capital markets, according to a new survey by the Center for Audit Quality, and a record 79 percent had confidence in investing in U.S. publicly traded companies just prior to the government shutdown on October 1.
“Weeks before the government closed, investor confidence in U.S. capital markets reached 69 percent, a level not seen since 2009, and confidence in investing in publicly traded companies reached a record high,” said CAQ executive director Cindy Fornelli in a statement. “Our polling shows a prolonged government shutdown or contentious debt ceiling fight would reverse this trend and shake investor confidence. A default could be devastating.”
This year’s CAQ Main Street Investor Survey marks the seventh consecutive year the CAQ has measured investor confidence in U.S. and global capital markets, audited financial information and investing in U.S. publicly traded companies.
The CAQ conducted a follow up “pulse” survey to its annual investor survey to gain a fresh perspective on how a prolonged government shutdown or U.S. default would impact investor confidence. The results, from a poll of 424 average U.S. investors, indicated that today investor confidence in U.S. capital markets is holding steady at 69 percent. The longer the shutdown continues, however, the more confidence will erode. If the shutdown lasts another week, confidence recedes to 60 percent. Most importantly, investor confidence would plummet to a record low of 39 percent if Congress fails to raise the debt ceiling and the U.S. were to default on its financial obligations.
“This new data shows just how high the stakes are for the country and our capital markets if the U.S. defaults,” Fornelli added. “We’ve not seen investor confidence in the U.S. capital markets fall below 60 percent in the seven years we’ve conducted our survey, including in 2008 at the height of the financial crisis. Staring at the real possibility that confidence dips to 39 percent if the U.S. defaults should be an incentive for policymakers to resolve this situation.”
The survey also found that confidence in capital markets outside the United States rebounded back to 2011 levels with a seven percentage point jump to 42 percent. After declining in 2008, confidence in audited financial information released by publicly traded U.S. companies has remained steady over the past four years with just over two-thirds of investors expressing at least some confidence. This year saw a slight uptick with just over seven in ten (72 percent) investors expressing at least some confidence.
Since 2011, respondents were asked how much confidence they have in a number of different entities when it comes to effective¬ness in looking out for investors’ interests. As in past years, investors express the most confidence in independent auditors (72%), followed by financial advisors and brokers (69%) and independent audit committees (69%). All entities across the spectrum saw an increase in confidence in 2013.
In addition to measuring confidence, the survey also explored the factors that influence investment decisions, including what types of information investors find essential to their decision-making process. It found that investors consider more nonfinancial factors as being essential to their investment decisions than financial factors. Nonfinancial factors viewed as essential by four in ten investors or more include the sector or industry the company is in; whether a company has sound corporate governance in place; the company’s key strengths and weaknesses; the strategy for future company growth; the company’s risks and opportunities; and whether the company is operating in a socially responsible manner and/or an environmentally-friendly fashion.
In terms of where investors source information, the survey found that a majority of investors relied on a financial planner, advisor or broker, and two-thirds consider a company’s financial reports when making investment decisions. However, 34 percent of investors surveyed indicated that they use social media some of the time as a source of information.
“While investors continue to receive information from a variety of more traditional sources, information from social media is increasingly being integrated into many investors’ decision-making framework,” said Fornelli. “This trend, particularly among younger investors, is important as companies consider how to share financial and non-financial information with current and potential investors.”