FYI | Apr 09 2014
Investor attitude has changed since late last year with cash from term deposits and fixed income assets cautiously moving into equities. At the same time, investors who have benefited from rising share prices since mid-2012 have elected to take profits, moving cash back to the sidelines.
Despite these offsetting fund flows, the Australian Investors Sentiment Survey for March, conducted by the Australian Investors' Association (AIA) and FNArena, suggests the average cash allocation for investment portfolios has now fallen to 18%, down from 19% in November and on equal footing with surveys in September and March last year.
According to the survey, the average cash allocation has been as high as 26% in September 2011. The average allocation to equities has risen to 53.5%, the highest level in more than a year and up from 51% in November.
Investors’ changed attitude towards risk becomes even clearer when we consider that combined allocations to term deposits (“cash”) and fixed interest peaked at 38% in September 2011. Today the corresponding number is 29%. Over that period the average allocation to equities has risen from 45% to 53.5% in March.
While indications of investor optimism continue to outweigh bearish sentiment, the results of the March survey nevertheless indicate overall investor sentiment has become more cautious. This is illustrated, for example, by a sizeable jump in respondents indicating a Neutral view on the outlook for the share market (now at 60%).
When asked whether the share market is likely to be higher in six to twelve months’ time, a majority of 56.5% believes this will be the case, against only 18.5% having a bearish view. These results nevertheless indicate a more cautious view in comparison with September last year when 65% responded positively and only 13% indicated a negative outlook.
The general underlying sentiment of "cautious optimism" was reflected in comments provided within the Survey.
“For self funded retirees who tend to be investors, rather than traders, the market seems to be fully valued. Since term deposit interests rates are the lowest they have been in a long while, dividends are the main source of income.”
“Company earnings have to improve if there is to be a significant and real improvement in share prices and dividends.”
“Timing of markets is not accurate but I expect an upward trend to establish itself.”
But also:
“The market has run hard, prices are high, value difficult to find, makes me nervous!”
“Waiting for annual pull back in April/May before increasing equities as world economy recovers (slowly) in second half of year. Expect stock picking will be important this year.”
An uptick in the FNArena/AIA Investor Confidence Index confirms overall optimism remains high, but also firmly embedded inside a cautious mindset.
Having formed a bearish low of 40.6 in May 2012, the Index proceeded to climb to 61.4 by January 2013. Since then it has maintained a level near 60 as the Australian market has gradually risen. In time this may prove to be a figure indicative of a gradually improving bull market. A value above 50% denotes investors’ overall bullish sentiment towards the growth asset markets.
In March, the Index rose to 60.2%, up from a temporary dip to 56% in November.
The Investor Sentiment Survey asked members at AIA and FNArena how they felt about the market and how they were invested. The Survey will be repeated in two months (May 2014).
228 respondents participated through the AIA and 204 through FNArena.
Technical limitations
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