Upswings in confidence bring advisers opportunities


February 16, 2017

Consumer and business sentiment figures have improved so far in 2017, which could lead households and the commercial sector to loosen their purse strings. But the year is still young and uncertainty in overseas markets makes it too early to tell whether confidence will endure.

The Westpac Melbourne Institute Index of Consumer Confidence rose from 97.4 points in January to 99.6 points in February, a 2.3 per cent gain. While this figure is an improvement on last month, any number below 100 means more consumers are negative than positive. Pressure on family finances, as well as a mixed economic outlook, contributed to the subdued result.

It’s a difficult environment for advisers to navigate. Higher confidence levels should bode well for the performance of publicly listed retail and consumer goods businesses, which could prompt a rise in sharemarket values for companies in these sectors. But given there are still more negative consumers than positive, predicting future performance for consumer-exposed businesses is problematic. The continuing impact of the digital revolution on all firms also makes the outlook for household-facing industries rocky.

While household confidence remains under par, the same cannot be said for business confidence, which has come screaming back. NAB’s Monthly Business Survey for January 2017 found that business confidence jumped 4 points, to 10, in January – its highest level in three years. The average is 5.74.

The bank warned the commercial sector not to get too carried away with this month’s index in isolation. Higher commodity prices, liquefied natural gas exports and the booming residential construction sector – as well as better trading conditions, the slack in the jobs market and healthy company profits – led to the buoyant result. But the declining impact of these factors on the economy and business confidence bring a more muted result for February.

Matthew Prentice, principal of MP Financial Advisers, noted that the continued mildly positive trend in the consumer sentiment index over the past two years should result in more people seeking financial advice, due to the opportunities a more positive consumer environment presents.

“This gut-feel confidence can prompt consumers to seek more novel financial opportunities, perhaps by investing in riskier assets, or taking on more debt,” Prentice says.

He notes consumers are now more educated than ever when it comes to their finances and are more inclined to take charge of their wealth than they may have been in the past.

“But there are still plenty of opportunities for the financial advice sector to actively engage consumers, harness their lifted spirits and help clients reach their financial and lifestyle goals,” he says.

Advisers with a contrarian approach might look to sectors such as financial services and retailers for investment opportunities, given businesses in this sector are not over-valued.

Market participants may be more circumspect about their weightings to resources stocks, however, should they hold the belief mining stock values are already at their peak at this point in the market cycle.

TOPICS:   business confidence,  consumer confidence,  Matthew Prentice,  NAB Monthly Business Survey,  Westpac Melbourne Institute Index of Consumer Confidence