The confidence of Australia’s chief investment officers (CIOs) in the equities market has slipped back to mid-2012 levels, according to the latest Financial Services Council’s Chief Investment Officer Index.
Their confidence in the investment environment for the June quarter was seven in a range of minus 100 to 100, in which a score of zero is considered neutral. This is down from a high 35 in March and eight in December, and is the lowest recorded since September 2012.
“Sentiment remains positive for Australian and international equities, but has fallen from the exceptionally high levels recorded in March,” said James Bond, chief economist at the FSC.
“What we are seeing this quarter is that the strong, positive view of equities from CIOs that has underpinned market confidence in previous quarters has waned. This is because CIOs saw equities as being undervalued and well priced in 2011 and 2012. However, there is a general view that the markets are now more fully priced.”
And other issues
However, the survey found that despite recent market conditions and the drop in confidence, CIOs still expect equities to outperform other asset classes over the coming 12 months.
The low levels of confidence from CIOs in international and domestic fixed income and cash remain as the impact of monetary policy on these asset classes continues to point to poor performance.
Bond said CIO’s greatest concern is that the Reserve Bank and other central banks get monetary policy right in difficult policy conditions.
“CIOs see unwinding action taken by governments and central banks during the GFC as the greatest long-term risk,” he said.
“The impact of reversing quantitative easing in the US is seen as having both short and long-term implications. The inevitable unwinding of expansionary fiscal positions and government debt on economic activity in the US and Europe are also seen as significant risks to strong growth.”
Measuring risk
In related news, the FSC has hailed its Standard Risk Measure (SRM) as a “significant step forward” for the industry, enabling a standard calculation and presentation to be applied to investment risk in superannuation.
Developed by the FSC and the Association of Superannuation Funds Australia (ASFA) in consultation with APRA and ASIC, the SRM was launched less than one year ago.
A full review and analysis of the first phase of the SRM has been scheduled for later this year.
The SRM aims to provide better protection for consumers by standardising the presentation of risk for all investment options within funds.
“This is good for consumers as this information has been previously unavailable,” said John Brogden, chief executive of the FSC.
