Appetite for overseas assets reaches nine-month high

Nearly half (44%) of all investors believe they need more international assets in their investment portfolio, according to the Certitude Global Investment Intentions Index (CGIII). The CGIII, which collates the views of over 560 Australian actively engaged investors and measures their net demand for global investments, increased by 3% to a 9 month high this month, and is now at its second highest level since inception in June 2013.

While investors’ 12-month capital gain expectations from global markets increased in January, only 32% of investors said they believe Australia’s economy will record healthy growth in the next 12 months, indicating that nearly 70% of investors do not expect healthy growth.

Craig Mowll, CEO of Certitude Global Investment said: “It is not surprising to see demand for overseas assets at its second highest level since inception of the CGIII. Clearly investors remain fundamentally concerned about the strength of the Australian economy and are looking to cast their net further afield.

“And it seems that the RBA agrees. The recent decision to cut official interest rates would appear to indicate that investors aren’t the only ones concerned about the strength of our economy.”

When it came to international markets of most interest, the US/North America again remained far and away the most popular. Over half (53%, up 7% pts from December 2014) of investors interested in investing overseas chose this option. The second most popular option was international funds covering multiple regions (38%, up 6% pts), but Western Europe (25%, up 8% pts) also rose sharply month-on-month.

It was also revealed that investors are looking to act sooner rather than later. Intended timing of overseas investments remained short with 46% (down from 52%) of those interested in investing overseas saying they would like to do so in the next three months.
Mr Mowll commented: “While interest in North America (53%) and Western Europe (25%) is at its highest level since inception in June 2013, demand for Asian (13%, up 1% pt) and emerging markets (10%, up 1% pt) rose only very slightly. When these results are set against the backdrop of a rising greenback and slowing growth in emerging markets, it appears that investors may be looking to re-orient from riskier options, and focus on developed markets.

“Indeed, when they were asked what they were most concerned about in relation to their investments, 56% of investors said another global financial crisis, up 3% from last month. This suggests that while investors may be keen to invest overseas, they are cautious about the markets they choose.

“At the same time, it was clear from this month’s responses that investors are not ignoring the issues at home. A third of investors (32%) said that their biggest concern is Australia’s debt level, 30% were most concerned about commodity prices and 25% about the exchange rate and value of the Aussie dollar.”

In terms of investors’ preferred overseas asset classes, equities were once again at the top of the list, and this month demand increased by 4% pts to 85%, the highest level since November 2013. Demand for private equity (6%, up 3% pts) also increased, whereas demand for infrastructure (14%, down 2% pts) and hedge funds (2%, down 4% pts) fell.

Mr Mowll explained: “These results reveal that investors are feeling positive about international equity markets generally. And given that private equity is essentially unlisted equity, the increase in demand makes sense, as investors seek to increase and balance their exposure to equities with a mix of unlisted and listed assets.

“In addition, many investors consider investment in infrastructure and hedge funds as a means of mitigating risk, so at times when they expect an upward trajectory in equity markets, they are less likely to increase exposure to these assets. This may be the case now.”

January CGIII – Key findings

• The CGIII reached a 9-month high, rising 3% from 178 in December 2014 to 184 in January, indicating that Australians’ appetite for overseas investments is increasing.
• Australian active investors remain positive about the outlook for international markets, with 12 month capital gain expectations for global markets rising to 3% for the next 12 months.
• Intended timing of next overseas investments is short, with 46% of investors indicating they intend to increase their exposure in the next 3 months.
• Interest in the US (53% of investor looking to invest overseas, up 7% pts), multi-region funds (38%, up 6% pts) and Western Europe (25%, up 8% pts) increased significantly in January, with interest in investing in Western Europe and North America at its high level since survey inception in June 2013.
• The proportion of investors interested in investing in equities for their overseas exposure increased significantly in January to 85%, up 4%. Demand for private equity (6%, up 3% pts) also increased, while demand for infrastructure (14%, down 2% pts) and hedge funds (2%, down 4% pts) fell.