Investor sentiment has unexpectedly declined in the first quarter of 2010, defying the logic of a rising market and strong signs of an economic recovery.

The IFSA/CoreData Investor Sentiment Index for Q1 2010 reveals that while sentiment remains in positive territory, it has slipped back to levels recorded in June last year.

The backwards slide follows recent consecutive interest rate rises, passed on by the banks via rising mortgage rates.

The RBA has raised the official cash rate twice since the last index was recorded, with the most recent hike earlier this month taking interest rates to 4%.

While this is a historically low level, it’s perhaps still a stretch for Australians recovering from job losses, salary cuts and general financial strain over the last 12 to 18 months.

It’s possible that the pressure this has placed on household cash flow means investors are unwilling or unable to invest new money in the market.

According to the index, the market for new investments is minimal. Almost two thirds of investors say they are unlikely to purchase a new investment product or invest in new equities.

The results also point to scepticism over the sustainability of the current pace of economic growth.

The RBA is forecasting growth of about 3.25% this year. While more than half of investors remain bullish on the growth of the Australian economy over the next three months, the proportion of investors anticipating faster growth has been slowly reducing over the last three quarters.

And the proportion that expects the economy to slow down is also rising.

The data remains choppy, making it hard to read too much into the results, however what’s clear is that the future remains unclear in the minds of many consumers.

It’s going to take more than a post-crisis bull run to coax them back to the market – at least for the foreseeable future.

*Data taken from the IFSA/CoreData Investor Sentiment Index Q1 2010