Muted Optimism

Investor confidence has returned to positive territory for the first time since the global financial crisis began back in the August 2007.

Nervous optimism is probably the phrase burningpants would use to describe sentiment right now – with investors wanting to believe that things will be better but confidence levels are fragile.

According to the latest IFSA CoreData Investor Sentiment Index, released this week, investor confidence turned positive to record at 2.3 – a significant improvement on the reading of -22.3 reported in the first quarter of the year.

However despite turning positive for the first time in almost two years it is a muted positive outlook.

We will need to record another positive quarter in the third quarter of this year before we can have confidence that sentiment is truly returning to positive territory.

Markets have taken a step back over the past week or so, but investors are cautiously optimistic that the worst of the financial crisis is now behind us.

The industry can expect to see investors slowly and cautiously returning to the market, barring any major economic setbacks over the next three months. For many, the wounds of the past two years are still very raw and it will not take much to reverse the positive signs that we are seeing at present.

Having said that more investors are now thinking that the market for investments will be generally better (34.1%) than worse (29.5%) in the next three months.

The boost to confidence was largely driven by a fall in negative outlook towards investment markets over the next three months, a slight rise in financial security and a rise in the intention levels of investors over the forthcoming three month period.

The investor confidence index is a key measure of investor sentiment for the financial services industry, with the ability to provide a comparative sentiment gauge over concurrent quarterly time periods.

The sentiment about the Australian economy remains at a low level.

A total of 46.2% of investors think business conditions in Australia will be worse next quarter compared to this quarter, and only 24.7% think they will be better.

While 42.5% of respondents feel financially secure, 27.1% feel insecure.

In general, the happiness of investors regarding their investments is at a neutral level.

The financial situation in their household is now better with 46.2% saying that they are now able to save.

The investor intention index in Q2 2009 is 8.1. This is a 24-point increase from last quarter.

Investors are more likely to take out a new investment product or make any direct investment than to top up existing investment products within the next 3 months. More than half (53.5%) are likely to take out new investments in the next 3 months, and 31.6% are likely to invest more in existing products in the next 3 months.

Australian shares and cash are the top two asset classes which investors are more likely to overweight their investment portfolios with. 34.0% are intending to overweight in Australian shares and 33.5% are likely to overweight in cash. This is followed by residential property (22.0%). Less than 15% of investors intend to overweight their investment portfolio with international equities, bonds or property trusts.