Desire to invest overseas reaches all-time high

Australian active investors continue to clamour for overseas investments, and high net worth investors[1] are leading the charge, according to the Certitude Global Investment Intentions Index (CGIII).

The CGIII, which collates the views of over 600 actively engaged investors and measures their demand for global investments, increased again this month to 186 (out of 200), on par with the all-time high last recorded in April 2014. Demand from high net worth investors (197) was even stronger in February, attaining its highest level since the inception of the CGIII in June 2013.

Annual capital gain expectations from global markets increased by 2% pts to 5% this month, but concern about the domestic economy deepened. Only about a fourth (28%) of investors believe that Australia¹s economy will record healthy growth in the next 12 months, down from 32% last month, while nearly half (44%, steady) say they need more international assets in their investment portfolio.

Craig Mowll, CIO of Certitude Global Investment said: ³What is really interesting is that the record demand for overseas assets this month coincides with the Australian dollar hitting a five year low against the greenback. This appears to be contradictory at first glance, because one would expect a weak Aussie dollar to constrain, rather than increase, investment in overseas markets.

³However, when investors were asked about the most appealing international markets, it became clear that they are taking the effect of exchange rate movements into account. Demand for US investments fell sharply among those who intend to invest overseas, from 53% to 45% this month, as did demand for assets in Western Europe, from 25% to only 18%. On the other hand, the attraction of investments in Asia rose significantly (from 13% to 18%), as the Aussie dollar performed better against the renminbi.

³Australian investors evidently want more international assets generally, but are considered in their decisions about the international markets they choose, incorporating expectations around exchange rates into research about which overseas markets offer the best value.²

When investors were quizzed about the asset class they favoured for their international exposure, equities were once again the clear favourite, and gained more ground this month. Ninety-one per cent of investors said they intend to invest (more) in equities, compared with 85% last month. Infrastructure was the next most popular option, at 11%, followed by property, at 10%.

Mr Mowll explained: ³Equities have consistently been far and away the most popular option for Australian investors seeking overseas exposure, and this month was no exception. What was interesting was the fact that demand for the majority of other investment options fell across the board. It¹s clear that more and more active investors are focused on international equities to the exclusion of other options, including infrastructure, property, fixed income and private equity, all of which went down.²

This month¹s CGIII also revealed that exchange rates are very much top of mind for Australian investors. When they were asked about what currently stops them from investing (more) overseas, 26% cited exchange rate volatility as a barrier, up 4% pts from last month. Market volatility (21%, down 2% pts) continues to worry investors this month despite a slight decrease from the previous month.

Mr Mowll concluded: ³Australian investors may be looking beyond their usual stamping grounds of the US and Western Europe on the back of a weaker exchange rate, but this clearly hasn¹t seen them shun global markets altogether. In fact, what we may be seeing is a sharper focus on regions where they see better value, such as Asia. The US is still very much the preferred international market, but Asia is now on par with Western Europe, and fewer investors cited a slowdown in China as cause for concern this month compared with last month.

³The bottom line is that despite some concerns about specific markets and investment options, Australian investors have once again revealed themselves keener than ever to invest overseas, and bullish on the possibilities on offer in global markets.²

February CGIII ­ Key findings

The CGIII increased to 186 in February, up from 184 in January, and on par with the all-time high last recorded in April 2014. Among high net worth investors the index reached 197, the highest level since inception in June 2013.

Nearly half of investors (44%, steady) say they need more international assets in their investment portfolio, whereas only about a fourth (28%) of investors believe that Australia¹s economy will record healthy growth in the next 12 months, down from 32% last month.

Interest in the US and Western Europe decreased significantly, while interest in Asia increased. The most popular markets Australians would like to invest in are:

– US/North America (45%, down 8% pts)

– International funds covering multiple regions (35%, down 3% pts)

– Western Europe (18%, down 7% pts)

– Asia (18%, up 5% pts)

The proportion of those interested in investing in equities for their overseas exposure increased significantly in February (91%, up 6% pts). The next most popular options were infrastructure (11%, down 3% pts) and property (10%, down 3% pts).

Exchange rate volatility (26%, up 4% pts) was the most commonly cited barrier to investing overseas.