Demand from Australian investors for international shares increased markedly in July, according to the Certitude Global Investing Intentions Index (CGIII). The CGIII, which collates the views of over 630 actively engaged leading investors and measures their net demand for global investments, revealed that 22% of investors plan to increase their exposure to international shares, up from 16% the month prior.
In fact, investors showed certain eagerness to increase their overseas investment sooner rather than later with 38% of investors saying they plan to increase exposure within three months, up from 30% saying so in June. And 4% said they would do it in the next week (up from 1%).
Investors’ concern levels with global markets fell further this month, reaching the lowest point observed since the GFC of 5.4 out of ten, as optimism about global and domestic markets soared. Three out of four Australian investors now believe global markets will rise over the next year, up from 67% in June, and only 11% believe they will fall, down from 13% over the same period.
Investors’ expectation of returns from domestic markets are higher this month as well. On average, Australian investors expect the All Ordinaries to rise by 6% in the next 12 months, compared with an expectation of 5% in the June study.
Craig Mowll, CEO of Certitude Global Investment said: “Results this month indicate that there is real optimism about investing in general. Despite some concerns about China and recent events in the Middle East and Ukraine, investors appear undaunted about any negative effect on offshore markets. This may be one reason that demand for international funds covering multiple regions decreased slightly this month when compared with other geographic options, as increased confidence can lead investors to want to overweight to particular regions themselves.”
The US/North America remained far and away the preferred option when it came to international markets. Its popularity has been rising sharply since May this year. This is likely the result of better economic data coming out of the US, and the fact that US corporate profits and earnings are strong.
Also of note, interest in investing in Western Europe reached a 12 month peak, which again reinforced the view that investors are positive about the pace of recovery in the Eurozone despite the issues in the Ukraine.
When investors were asked about which international asset classes they favoured, equities remained by far the most popular. What was interesting however, is that interest in infrastructure investments increased sharply (13%, up from 9% in June), as did interest in hedge funds (6%, up from 3%).
When it came to the barriers stopping or limiting investors from investing more in overseas markets, a lack of knowledge was again the biggest barrier. However, and perhaps reflecting investors’ optimism, it was down by 2% pts, from 25% in June to 23% in July. Concerns about market volatility were also up by a small amount, which may account in part for the increased demand for infrastructure and hedge funds, which are designed to help manage volatility.
Commenting on the reasons for significant uptick in interest in infrastructure and hedge funds, Mr Mowll said: “Over the past 6 months, Certitude has experienced a marked increase in investor appetite for alternatives, with a particular interest rising for hedge funds. One reason may be that investors are also dialling up their exposure to equities, and understand that alternatives are a great way of cushioning volatility and managing risk. Hedge funds have little correlation with equity and fixed income markets, and in the case of infrastructure, it can satisfy investors’ desire for income.”
Mr Mowll concluded by saying that this month’s CGIII shows that Australian investors clearly have a growing appetite for international exposure, and that even political turbulence in global hotspots has not affected their optimistic outlook.
“Nonetheless, it was interesting to see that a lack of knowledge was still the most commonly cited barrier to investing overseas and that actively managed international funds remained a strong preference for investors looking to make informed decisions.
It is great to see investors acknowledging that they need to look further afield than our domestic equity markets for returns, and that there are number of investment options in addition to equities, when it comes to structuring a balanced portfolio of global assets.”
July CGIII – Key findings
1. Investors’ concern level with global markets reached a record low of 5.4 out of ten, down from 5.6 last month.
2. 22% of investors plan to increase their exposure to international shares, up 8% pts, compared with June.
3. Australian investors are more optimistic in their outlook than in June. They anticipate a rise of 6% in the All Ordinaries over the next 12 months, and 5% for global markets.
4. The most popular overseas markets were the US/North America (51%), followed by international funds covering multiple regions (27%) and Western Europe (26%).
5. 41% would like to gain exposure via direct shares (up 3% pts); 33% would like to gain exposure via ETFs (up 6% pts) and 33% prefer actively managed funds (down 3% pts).
