FYI | Jul 31 2012
Australian investor sentiment has begun to show some signs of life over the past two months. A good number of respondents to the Australian Investors Sentiment Survey for July, conducted by the Australian Investors’ Association (AIA) and FNArena, while still cautious, are starting to see some signs of light at the end of the tunnel.
As of this month, investor sentiment levels have returned to levels similar to those of May 2011. Although optimism remains very much in the minority, a significant shift from bearish to a neutral sentiment has occurred in the two months since the last survey.
In fact, the latest survey shows a general improvement across most reads for investor sentiment from the lows recorded in May. The number of respondents indicating a bearish attitude has fallen substantially from 57% to 37%. Even more supportive of the improving trend are survey respondents that now hold a neutral view on investment markets, which has increased to 53% from 36% back in May, while the number of bullish respondents increased to 10% from 7%.
However, the perception of investment markets, while improving, is far from positive. A number of survey respondents remained concerned that what they see as a dysfunctional government in Canberra is actually contributing to market pessimism. However, it is still the ongoing economic malfunctions in Europe that remain the most common cause of concern.
Nevertheless, an increasing number of investors are starting to take a more objective view of the situation and are starting to see some opportunities being presented by the historically cheap prices of Australian equities.
Alan Gall from Young, NSW, summed up the level of increasing confidence quite well, saying “Far too much emphasis is put on trivial data and reporting in negative terms. Growth in developing economies will more than compensate for subdued growth in the advanced economies.”
Also turning positive was Phil Featherstone from Melbourne, who said “I feel the ASX is firming in support and we may see some recovery going towards December 2012.”
Unsurprisingly, the mid-term outlook is even more optimistic, with almost 40% of survey respondents bullish on a 6-12 month view and only 24% negative over the same time frame. 39% of those surveyed believe markets will be higher in 6 months time, which is 6% better than May and the second best read since May 2011.
An increasing number of respondents note that share market prices are now close to long-term lows leading them to expect a recovery will begin over the course of the current half year. With only 33% of respondents believing markets will be lower in the half year ahead, the dominant view is for higher markets in six months time.
Roy Ranney from Sydney sums up current attitudes fairly well, saying “I am gun shy like many others at the moment. The markets are too volatile for any rational investment. However, I suspect that the markets are probably near the bottom, just needing a catalyst to get moving again. However, there still needs to be some structural corrections to the global financial situation for any sustained rally to happen . . . and this will take time.”
Gabriel Nyilas of Melbourne expressed a similar cautious type of optimism that is starting to spread though the market. “I feel like the athletes at the starting block. Just waiting for the gun to go off. I think the whole world [is] waiting for three or four or five bits of good news to follow one another, instead of one good, one bad, followed by another good, another bad, etc.”
There was little change in attitudes towards asset allocation from May, given markets are still in a state of flux. Around 44% of portfolios remains allocated to equities and about 22% is held in cash. Property remained within a few points at 19% and fixed income at around 15%.
“A lot of the equities are substantially down on cost. Not a good time to reduce,” explained Bob Ramsay from Melbourne.
In line with all of the above, overall investor confidence was much improved in July compared with the May result. Yet while the AIA Investor Confidence Index improved quite significantly over the prior period, a value below 50 still indicates overall confidence remains low.
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 (Sept. 2012). 380 respondents participated through the AIA and 268 through FNArena.
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