FYI | Oct 26 2010
By Chris Shaw
Australian investor sentiment is improving according to the latest ING Investor Dashboard Sentiment Index, which shows a more bullish attitude with respect to Australian shares. The survey showed sentiment in Australia rose to a reading of 135 out of 200, well up from the 113 recorded in the June quarter.
While sentiment is improving investors are not yet reacting by investing more in equities, as Jim McKay, head of sales for ING Investment Management, notes cash and gold deposits are still being favoured over shares.
When rated as an investment, gold scored 50 points, cash deposits scored 31 points and Australian shares scored 23 points. Cash was also seen as the best way of taking advantage of Australian interest rates, preferred by 55% of respondents compared to equities at 27%.
While Australian investor sentiment is improving, it continues to lag its Asian neighbours, the ING survey showing India was the most positive in the region with a sentiment reading of 175, while Hong Kong also scored well with a reading of 151.
McKay notes September quarter results from the survey showed 84% of investors expect the Australian equity market will either raise or remain stable. This is a significant improvement from the June quarter survey, when 39% expected the market would rise and 26% saw the market staying around the same level.
The September survey shows investors expect a 6.42% gain in the Australian equity market over the next three months.
With respect to where investors would invest relative to the risk/reward spectrum, McKay notes the weighting remains towards the safe end. A total of 64% of respondents viewed medium growth managed funds and cash as favored options, which compares to only 23% in favour of higher risk/return investments such as derivatives.
In McKay's view, the fact there remains a disconnect between what investors think and what they are doing shows ongoing market volatility is leaving investors nervous about the global investment market outlook.
In terms of the Australian economy, McKay notes the September survey showed 79% of Australian respondents expect domestic inflation will continue moving higher, a similar outcome to the June survey. This suggests Australian investors remain confident of ongoing strength in the Australian economy.
McKay notes Australian investors are also looking to take advantage of the stronger Australian dollar by investing in foreign assets. This reflects expectations of further weakness in the US dollar, the survey showing only 10% expect the greenback to appreciate and 49% expect further depreciation.
As with the greenback, expectations are for further weakness in the US economy, McKay noting the survey showed only 27% of respondents in the survey expect an improvement in the US economy in the coming quarter. This is down from 31% in the June quarter.
More than half of respondents expects it will take three months or longer for the US economy to recover and the survey shows 55% see US interest rates remaining on hold next year. This compares to 31% of respondents taking the view US interest rated will move higher in the coming year.
Given these pressures, McKay suggests it is no surprise investors are still attracted to safer assets, even while expecting equity markets will move higher. The problem with this view, according to McKay, is investors could miss out on opportunities by retaining this overly conservative attitude.
