Following a record high in April, in May Australians revealed themselves to be less likely to invest overseas, according to the Certitude Global Investing Index (CGIII). The CGIII, which collates the views of over 500 actively engaged leading investors and measures their net demand for global investments, fell for the first time since February this year.
On the other hand, the level of concern about global markets is at its lowest level since the inception of this study, and demand for international shares, while weaker this month, was only marginally so. Slightly fewer investors (19%, down from 20%) intend to increase exposure, however 3% (up from 1%) of investors plan to actively decrease their exposure.
Half of all investors surveyed believe that Australia’s economy will record healthy growth in the next 12 months and Australians remain confident that the All Ordinaries will outperform global markets, anticipating a rise of 5%, compared with 4% for global markets; 38% of investors intend to increase their exposure to Australian shares.
Craig Mowll, CEO of Certitude Global Investments said: “Results from the CGIII this month indicate that while Australian investors are not worried about global markets, the fact remains that a greater number of investors are looking to actively decrease their exposure to international shares than last month, which may indicate that they are cashing in and taking profits.”
The US/North America once again outstripped other regions and remained the most popular choice for leading Australian investors. Having said that however, its popularity fell by 5% pts this month, which is perhaps a comment on the pace of economic recovery in the US, as well as uncertainty surrounding the effects of the tapering of quantitative easing.
On the other hand, Western Europe and Asia both gained ground, and intention to invest in these markets was up 8% pts and 4% pts respectively. It’s clear that investors are beginning to move on from concerns about the sovereign debt crisis and economic stagnation and are beginning to eye Western Europe with more interest.
On the home front, the sweeping cuts announced in the Federal Budget and their likely implications for the local economy may have shaken investor confidence in the short term. 49% of investors (down from 60%) believe that Australia’s economy will record healthy growth in the next 12 months.
US/North America remains region of choice, managed funds investing globally still popular
International funds covering multiple regions again ranked second after the US/North America as the most popular ‘region’, however the intention to invest via managed funds fell slightly this month.
Investors again overwhelmingly favoured equities over other investments for gaining their overseas exposure, with over 80% planning to use equities over the next most popular option, property, which only 10% of investors preferred.
For those investors intending to invest in equity markets in the next 12 months, 43% said that they intended to invest via actively managed international funds. The next most popular option was direct purchase of international equities, at 28%.
Commenting on investors’ strong preference for equities, Mr Mowll said, “Investors feel confident with equities, particularly when they are investing overseas. It is well known that over the long term equity markets perform better than many other options, but they are also relatively well-understood and have the added benefit of liquidity, which gives investors comfort.”
It was interesting to note that investors continue to see value in having an experienced active fund manager take responsibility for their overseas exposure. Lack of knowledge was cited as a major barrier to investing overseas, suggesting that investors’ preference for managed funds could be interpreted as their way of offsetting a lack of knowledge, through the choice of a quality active manager.
Mr Mowll concluded: “Investors may have been concerned about their lack of knowledge rather than the inherent riskiness of global markets in April, but this month, concern about international markets is at an all-time low. Investors were more cautious generally this month, and the convergence between demand for international shares and Australian shares which we have been witnessing recently reversed slightly. Nonetheless, demand for offshore investments remained strong overall, indicating that Australian investors continue to look beyond our shores for opportunity.”
May CGIII – Key findings
1. Net demand for international assets decreased by 11% from its record high in April 2014. The Certitude Global Investing Intentions Index now sits at 170, down from 186, and in line with the 12 month average.
2. Concern level with global markets remained low at 5.6 out of 10.
3. Slightly fewer investors (19%) intend to increase exposure to international shares this month, while slightly more (38%) intend to increase their exposure to Australian shares.
4. The US/North America remained the number one market of interest, although interest fell by 5% pts. Interest in Western Europe rose by 8% pts and emerging markets fell by 2% pts.
5. More investors prefer to gain international exposure via actively managed fund (43% down 3% pts) rather than through direct shares (28% down 10% pts).
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