Cliff Jumping

You can’t blame investors for feeling uncertain about what the future holds when a cursory glance at the news pages would make even the most cool-headed investment banker want to jump off a cliff.

Last week, we announced investor sentiment in Australia had hit its lowest point in seven years. CoreData’s Investor Sentiment Index, published quarterly, revealed a confidence rating in Q4, 2011 of -22.4, slightly lower than in Q1 2009 during the global financial crisis (GFC).

It marks the seventh consecutive quarter of negative sentiment, and is a worrying sign for the Australian economy.

Interestingly, while the number of investors that think cash will perform worse in Q1 now outweighs the proportion who expect it to perform better (29.1% vs. 25.2%), cash remains the most popular asset class for investors to rebalance towards, with more than one in four (27.0%) more likely to rebalance to cash this quarter, down only marginally on the previous quarter (30.9%).

One might infer from this that while Aussies are banking on interest rate cuts in the short term, they can’t see any viable alternative to cash in the current environment. Sentiment towards domestic shares continues to slide backwards, with only 16.3% looking to rebalance to the asset class in Q1 2012, compared to 24.9% in Q1 2011.

A quick look at the news pages and it’s little wonder investors continue to duck for cover. Two of Australia’s broadsheets had the following business news headlines running online in the space of just one morning.

Fraud fears on ANZ cuts – ANZ staff are warning of a surge in fraud after the bank cut a sixth of the employees from the unit that polices customer accounts.

IMF ‘needs US$500bn’ to fight Euro crisis – The International Monetary Fund said it would seek up to $US500 billion in new financial firepower as the European debt crisis increasingly threatens the global economy.

Westpac readies for job losses – Westpac is expected to slash as many as 600 positions across its operations this year, adding to job losses for the industry.

Financial crisis: get ready for next wave – Australia should brace for a return to the ”ugliest” of times if the latest World Bank warning of a new financial crisis proves correct, a leading economist says.

Eurozone on ‘brink’ of recession: Juncker – The European single currency area is on the verge of recession, Jean-Claude Juncker, president of the eurozone finance ministers said today.

The World Bank last week slashed its global growth forecasts, warning the world is on the edge of a new financial crisis, more damaging than the one that followed the collapse of Lehman Brothers in 2008.

The Bank has lowered its growth forecast for 2012 to 5.4% for developing countries and 1.4% for high-income countries (-0.3% for the Euro Area), down from its June estimates of 6.2 and 2.7% (1.8% for the Euro Area), respectively. Global growth is now projected at 2.5 and 3.1% for 2012 and 2013, respectively.

In order to regain confidence, investors need to see positive signals about the global economy, have job security and certainty of future income and strong leadership at home.

The World Bank’s forecasts suggest none of these things are likely in the short term.