Time Warp

Just like mullets and jumpsuits, or a rogue ex-boyfriend, often the past comes back to haunt us.

Investors spent last year watching the Australian economy wriggle free of the global downturn with merely a few scratches, while other nations scrambled to heal gaping wounds.

In comparison to our global counterparts, things down under were looking pretty rosy, and investor sentiment climbed accordingly.

However this quarter’s IFSA/CoreData Investor Sentiment Index has seen sentiment return to Q1 2008 levels, suggesting the uncertainty that began to rear its head in the first quarter of 2010 has both continued and accelerated and perceptions of the future direction of markets are becoming increasingly negative.

Investor sentiment slipped back into negative territory in Q2, retracting to -8.5, down from +2.9 in Q1 this year.

Although still 13.8 points higher than where it was at the beginning of last year, the Index is now over 15.9 points lower than where it was at the end of 2009 when investors were hopeful that the GFC was behind us.

While that may have been the case (from a banks defaulting perspective), the fallout is expected to go on for some time, spurred by a rising interest rate environment, an imminent Federal Election and choppy investment markets – particularly in the resources sector where there are concerns that ex-PM Kevin Rudd’s super profits mining tax will negatively impact on future project profitability.

Satisfaction with existing investments remained on par with last quarter at 37.9%; however the number of investors that anticipate faster growth of the Australian economy has been reducing over the last three quarters.

Less than a third of investors (29.7%) anticipate the growth of the domestic economy to speed up over the next quarter – considerably less than in past quarters. Just over half (51.5%) now expect it to slow down (compared to 29.5% in Q1).

Only 31.7% expect business conditions in Australia to improve over the next three months, down from 55.1% in Q4, while 34.6% expect conditions to worsen.

Sentiment was most negative in WA, where the proposed mining tax is presumably to blame for the state flipping from being the most optimistic state last quarter to the most pessimistic state this quarter.  

Following a similar trend to the Sentiment Index, the Investor Intention Index also declined to -26.8 from -19.7.

The polarisation that was evident in the market in past quarters has since disappeared, with only 22.2% of investors likely to invest new money in existing investments in the next three months.

The proportion of investors that are unlikely to purchase a new investment product or invest money directly in new equities increased again in Q2, to 71.8% from 65.0% in Q1 2010 and 61.3% in Q4 2009.