Two-speed

As we head into 2010, investors remain cautiously optimistic. However Australia is still operating as a two-speed economy with two distinct pockets emerging from a sentiment perspective – the optimists and the pessimists.

Much has been said about the nation’s dual or two-speed economy, with economists in the past referring to rising consumption coupled with lagging manufacturing, and more recently to China’s demand for resources fuelling growth in some states over others.

The two-speed concept is now becoming evident in consumer circles too, with almost a third of investors likely to invest new money in existing investments in the next three months, but more than half unlikely to invest, according to the final IFSA CoreData Investor Sentiment Index for 2009.

The index revealed a small but steady increase in sentiment conditions in the final quarter of 2009 to +7.4, up from +5.0 in the third quarter.

The index, which stood at -22.3 at the beginning of 2009, has seen close to a 30 point turnaround within a year and is 5.2 points above where it was in the second quarter, when sentiment first turned positive since the global financial crisis.

Interestingly though, the Investor Intention Index, a subset of the Investor Sentiment Index, which measures investors’ future investment decisions declined from -12.5 to -14.2, indicating that while sentiment is positive and moving in the right direction, the aggregated consensus is to remain on the sidelines.

It seems a collective modest level of overall confidence is not enough to drive decision making and new asset allocations – except within certain investor circles.

When it comes to household financial situations, investors can again be split into two groups – those that are saving and those that are just making ends meet or running into debt.

Two in five (40.6%) are saving a little – down slightly from the third quarter – while 29.3% are just managing to make ends meet on their income.

Slightly over half of investors (54.1%) are comfortable and unlikely to withdraw money from existing investments, while almost a third (30.4%) are likely to redeem cash from existing investments.

*Data sourced from the IFSA CoreData Investor Sentiment Index for Q4 2009