Retirement anxiety increases: CFS

Australian retail investors remained cautious towards domestic equities in the September 2013 quarter, despite a rebound in global equity markets, according to Colonial First State Global Asset Management (CFSGAM). The S&P/ASX200 Accumulation Index surged by 10.2 per cent over this period, as markets responded well to the US Federal Reserve’s decision not to reduce its bond-buying program.

This is one of the latest findings from the CFSGAM-UWA Business School Equity Preference Index (EPI), which was developed by CFSGAM and University of Western Australia’s Business School and measures investor sentiment of non-advised investors. The index tracks overall moves in and out of equity-based managed funds and switches between asset classes.

CFSGAM economic and market research senior analyst Ryan Felsman said that the latest analysis revealed a largely neutral outcome for investor equity preference, however, broader underlying trends within the index suggest investors moved into investment options with higher equity exposures than their previous allocations during the quarter.

“While overall equity preference remained flat, we observed switching between equities this quarter. In fact, net switches were positive in every month for the September quarter,” Felsman said.

Improving household risk appetite and sentiment surveys suggest that Australian households have lost some interest in term deposits due to record low interest rates. While this did not result in higher direct allocation to equities during the quarter, discretionary superannuation contributions increased, which will eventually flow through to equities indirectly.

“While we acknowledge that interest in equities is still not far off its lows, Australian households appear to be becoming more comfortable investing in risk assets with interest in equities and superannuation at their best levels in two years according to recent consumer sentiment surveys,” Felsman said.

“Recent consumer surveys have exhibited a shifting preference from paying off mortgages to investing in real estate and equities. Term deposits are offering unattractive yields, with official interest rates at a 53-year low of 2.5 per cent. Therefore, many investors are seeking to put their money to work, moving it up the risk spectrum, which follows increases in personal wealth due to surging property and share prices.”