Australia | Jun 02 2016
Australian investors do not expect the Australian share market to break out of its sideways trading pattern anytime soon.
The combination of elections both local and overseas, potential retrospective changes to retirement planning and the prospect for higher interest rates in the USA is being offset by resilient domestic and global economies and the expectation of further rate cuts by the RBA.
The Australian Investors’ Sentiment Survey for May, organised by the Australian Investors’ Association (AIA) and FNArena, shows sentiment since March has become less bullish, more neutral, regarding the outlook for domestic equities both short term as well as 6-12 months out.
Despite ongoing concerns about global debt and elevated valuations for shares in Australia and in the USA, the general view seems to be there seems little impetus for Australian shares to rise substantially higher, but neither looks a return to market volatility of January feasible.
All in all, it would appear Australian investors are resigned to the fact domestic equities are traveling sideways inside a trading range, and expectations are this is unlikely to change in the months ahead.
The underlying mood was probably best captured by one member of AIA who stated: “Expecting a steady but smaller improvement in coming months.”
Many expressed their discomfort. Said one FNArena respondent: “Cautious.” Another one added: “Very, very cautious.” A third member explained: " more cautious allocation in view of uncertainty".
Respondents with a neutral outlook now represent the largest group for the short term and regarding the outlook for domestic equities on a 6-12 months horizon. This hasn’t happened since January 2012.
Some investors are pinning their hopes on Christmas sales and the usual end-of-year Christmas rally.
In terms of average portfolio allocations, cash has fallen to 18% from 19% in March and domestic equities and fixed income products have been the main beneficiaries, but with notable differences between the two groups of participants.
Interestingly, respondents from FNArena indicated they have increased their exposure to Australian equities while members of AIA kept their equities exposure stable and added fixed income.
Total allocation to equities, combining domestic and international, has now surged to 56.5%; the highest number since the first Survey was held in January 2011.
Average cash, at 18%, has now returned to the bottom of the range (18-21%) that has broadly remained in place since November 2012. Cash dipped to 17% in July last year, but surged back to 21% by the next Survey two months later.
The Australian Investors' Sentiment Survey has been conducted every two months since early 2011. Throughout this period the highest level of cash held peaked at 26% in September 2011.
Since the Survey in March this year respondents can indicate allocations to precious metals and alternative investments, but both continue to represent a tiny slice of portfolios overall.
Investor confidence overall took a step back compared with two months ago, with AIA members decisively more confident than FNArena respondents. But both groups signalled they’ve become more cautious, less confident since March.
A reading above 50 still indicates a mild positive bias.
The Investor Sentiment Survey asked members at Australian Investors’ Association (AIA) and FNArena how they felt about the market and how they were invested. The Survey will be repeated in two months (July 2015).
203 respondents participated through AIA and 270 through FNArena.
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