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Cynthia Fornelli
Cynthia Fornelli

70% of Investors Show Some Confidence in U.S. Companies

Here’s why.

December 1, 2011
by Cynthia Fornelli

Each year since 2007, the Center for Audit Quality (CAQ) has asked investors how much confidence they have in U.S. capital markets. This year, six-in-ten (61%) investors indicate they have some, quite a bit, or a great deal of confidence in U.S. capital markets today, a decline of seven percentage points from 2010.

Economic News Is the Top Reason Given for Confidence in U.S. Markets

Those who expressed at least some confidence in U.S. capital markets were asked why they felt that way.

The top responses given are: the economic news and data they see (36%); and trust in the government in general or in the President specifically (25%). Some also cite the strength of the market (14%) and perceptions that the recession is over or is winding down (10%).

(Reader Note: This is an excerpted article. Figure 1 was intentionally left out of this article as it does not relate to this excerpted section. A link to detailed information including Figure 1 is listed at the end of this article.)

Figure Two: Reasons for Confidence in U.S. Capital Markets

2009

2010

2011

Based on information/economic data I read/ see/hear

40%

31%*

36%*

Confidence/Trust in US government and/or President

31%

22%*

25%

Market is strong

12%

15%

14%

Recession is over/ending^

-

15%

10%*

More/New government controls, regulations, transparency

4%

5%

6%

Financial information is independently audited

4%

3%

2%

U.S. tax rate

-

2%

2%

Potential rolling back of financial regulations

-

-

2%

Other (VOL.)

6%

8%

7%

Q: You indicated that you have at least some confidence in U.S. capital markets. For what reasons do you have confidence in U.S. capital markets?

Notes: Asked of those with at least some confidence in U.S. capital markets. Data add to >100% due to multiple responses

^ New code added in 2010 *Change is statistically significant from previous year

Economic Crisis/Recession and Too Much Government Spending/Interference Are Most Frequent Reasons for Lack of Confidence in U.S. Markets

Those who have little or no confidence in U.S. capital markets were asked why they felt that way. The top two reasons given are the economic crisis/recession in general (26%) and too much government spending/interference (18%). Some also cite weak government oversight of the capital markets (12%) and volatility in the U.S. stock market (9%).

Figure Three:
Reasons for Lack of Confidence in U.S. Capital Markets

2009

2010

2011

Economic Crisis/Recession

23%

23%

26%

Too much government spending/interference

15%

27%*

18%*

Weak government oversight of capital markets

14%

15%

12%

Volatility of US stock market

14%

10%

9%

Lack of jobs/outsourcing

3%

6%

7%

Pace of economic recovery

-

-

5%

Weakness of the U.S. dollar

7%

5%

5%

Bank failures

11%

4%*

4%

Credit crunch

4%

3%

3%

Financial information isn’t audited
thoroughly/enough

5%

1%*

3%

Home foreclosure crisis

5%

1%

1%

Q: You indicated that you have little or no confidence in U.S. capital markets. For what reasons do you have little or no confidence in U.S. capital markets?

Notes: Asked of those with little or no confidence in U.S. capital markets. Multiple responses accepted Only answer given by 4% in 2009, 2010 or 2011 or more listed *Change is statistically significant from previous year

 

Confidence in Capital Markets Outside the United States Continues to Ebb

Confidence in capital markets outside the United States fell from 47% to 43% in 2011. Although this decline is not statistically significant, its direction indicates a further eroding of confidence in these markets. Currently, as many American investors say they have no confidence in markets outside the United States (42%) as say they do have confidence (43%).

Figure4

It is also worth noting that, as in previous years, 15% were unable to answer this question. Altogether, confidence in capital markets outside the United States has fallen 22 percentage points since 2007. Investors with investments of $100K or more have greater confidence in capital markets outside the United States than those with less than $100K invested do (47% vs. 40%).

Not surprisingly, investors who indicate they have investments outside the U.S are more confident in these markets than those that do not (61% vs. 30%).

This article has been excerpted from CAQ Main Street Survey. View more details of the survey results and more information here.

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Cindy Fornelli is the executive director for the Center for Audit Quality (CAQ), which was founded in 2007 to serve investors, public company auditors and the markets. She has twice been honored by Directorship magazine as one of the 100 most influential people on corporate governance and in the boardroom and in 2010, Accounting Today named her one of the 100 most influential people in accounting for the fourth consecutive year. Prior to becoming the Center’s Executive director, Fornelli was the Regulatory and Conflicts Management Executive at Bank of America. Before joining Bank of America, Fornelli was deputy director of SEC’s Division of Investment Management.