Craig Mowll

Certitude Global Investing Intentions Index Report shows overall investor confidence has fallen across domestic and international markets amongst most asset classes but high net worth (HNW) and advised investors are bucking this trend.

While overall demand by Australian investors for most investments has slowed, HNW investors are showing little of the same nervousness of the broader investment community, according to the August Certitude Global Investing Intentions Index (CGIII).

The CGIII, which collates the views of over 600 actively engaged leading investors and measures their net demand for global investments, recorded a slight month-on-month decline of 2% in net demand for international investments in addition to a sharp fall in confidence around Australian equities.

The CGIII also compared high net worth investors (HNWs, $1m+ in investable assets) to the broader investor community and reported a marked difference in attitudes and confidence levels. Among the broader investor sample the overall net demand for global investments fell 2%, however amongst the HNW investor group the overall net demand for global investments continued to climb – settling at a level roughly equal to the six month high.

Commenting on the findings, Craig Mowll, CEO of Certitude Global Investments pointed to the role of advice in helping investors to protect themselves from panic, enabling them make measured and considered investment decisions. “We know that HNW investors are significantly more likely to be taking expert advice, for example they are likely to be considering international managed funds covering multiple regions in their portfolio. And further, when we look at the split between advised versus non-advised investors, the disparity in levels of confidence is even more marked. Advised investors have maintained the same levels of net demand for global investment over the last four months while non-advised investors have become very nervous.”

Although overall demand fell for both Australian and International shares, the popularity of these investments continued to outstrip other asset classes, such as property, term deposits and exchange traded funds. And looking specifically at the levels of interest in international investments over the next 12 months, the CGIII reported most global asset classes to have declined or to have remained steady, with the notable exception of fixed income (10%, up 4% pts). Appetite for this more defensive investment option increased to a 12-month high as it continued its surge in popularity for investors seeking out safer investment options.

Mr Mowll expanded, “Results from the CGIII in August suggest that investors are cautious about most equity markets and the slight decline in appetite for international investments is symptomatic of this nervousness. While high net worth investors buck this trend, the average investor is turning to lower risk asset classes such as global fixed income to maintain exposure outside Australia in what is considered a safer investment product.”

Mr Mowll continued, “For the first time the CGIII asked investors about specific concerns and the responses give further light and shade on this lack of confidence. The greatest concern for investors was the fear of another GFC or market crash, a factor cited by almost half (49%) of investors while the top ten concerns featured a mix of global and domestic factors. Geo-political events such as turbulence in the Middle East (41%) in addition to the slowdown in China (38%) weighed on the minds of investors. Of equal concern were factors closer to home such as a lack of confidence in the Australian economy (34%) and high levels of national debt (25%), and this has contributed to general dampening of investor confidence across the board amongst the unadvised investor community.”

Interest in multiple region managed funds continued to make gains

When investors were asked, specifically, which international markets were of most interest over the next 12 months, the US/North America (42%) again came in as the clear favourite among those planning to invest overseas, even though the level of interest was down significantly (by 9% pts).

The other winner was international funds covering multiple regions (31%). This option was once again investors’ second choice after the US/North America, with demand up 4% pts month-on-month.

Lending further support to the argument for expert advice in turbulent times, the intention to gain international exposure via actively managed funds increased by 6% pts to 39% overtaking ‘direct purchase of overseas shares’ (37%) which fell by 4% pts.

Overseas investment timeframes shorten, particularly amongst HNW Investors

The CGIII also saw the intended timings for overseas investments shorten considerably. Among those investors planning to invest overseas, 43% plan to do so within the next three months, an increase of 5% pts and a seven month high. Looking again at HNW investors, the timeframes are shorter still with 55% planning to invest offshore over the next three months.

Commenting on the increase in demand for managed funds investments overseas, Mr Mowll said, “In addition to higher levels of confidence among those who are seeking expert advice, we can also see that this group is more decisive. Again this shows that advisers are in the box seat to help their clients navigate the myriad of factors that may or may not impact investment outcomes and provide guidance over specific timeframes. The benefit of expert advice is not exclusively for HNW investors, rather an adviser can provide all investors with access to experienced investment managers, capable of structuring a portfolio across multiple regions to achieve the best investment outcomes for clients.

Mr Mowll concluded: “Although we are seeing an overall slowdown in demand for Australian and international shares, we continue to see desire for an asset allocation less heavily skewed to Australian equities with advised and high net worth investors leading the charge. The increasing popularity of managed funds demonstrates this and we would expect to see this trend continue, particularly if advisers play a more prominent role in helping navigate clients through uncertain times.”

August CGIII – Other key Findings

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Aussie investors heading to US market.

Australian investors may still have their sights firmly set on international investments, but they are steering clear of emerging markets left struggling by US Federal Reserve monetary policy.

According to recent market analysis undertaken by GaveKal and released by Certitude Global Investments (Certitude), quantitative easing in the US has created a ‘false’ price for the US dollar, leading to a misallocation of capital and distorted trade flows between the US and many emerging markets.

CEO of Certitude, Craig Mowll, explained that while from the US perspective quantitative easing has helped stimulate the domestic economy and improve the balance of trade, it has also increased US net exports. One consequence of this is a reduction in global trade and a significant slowdown in growth of some key markets – primarily emerging markets.

“Because the US dollar is the world’s reserve currency, the US current account deficit needs to grow, not shrink, in order to increase global trade and this isn’t happening at the moment,” he said.

Mr Mowll said that while many emerging markets are struggling, it’s far from all doom and gloom, because the weaker regions are being offset by others in relative positions of strength.

“Countries such as Turkey, South Africa and Brazil are in the more challenging positions, as are those attempting to defend fixed or artificially high exchange rates, like the Ukraine and Argentina,” he explained.

“However, other emerging markets, such as the Philippines, Indonesia and Pakistan, are all travelling along nicely, even despite natural disasters and political crisis,” he said.

Mr Mowll also pointed to the January 2014 Certitude Global Investing Intentions Index Report (CGIII) as further evidence of Australian investors’ more cautious approach to emerging markets.

“The latest CGIII shows net demand for global investments by leading active Australian investors at its highest level since inception. However, investors ranked emerging markets sixth in attractiveness, well behind the top five, which are US/North America, international funds covering multiple regions, Asia, Western Europe and China,” he explained.

Mr Mowll went on to say that these latest results demonstrate that investors are less concerned with volatility and currency risk in the US and Western Europe than they have been in the past.

“On the other hand, when it comes to emerging markets, growth expectations continue to be ratcheted down, influencing investors’ allocation decisions,” he said.

In conclusion, Mr Mowll said that, despite Australian investors’ strong sense of optimism towards international investments, exposure to emerging markets is unlikely to rise in the near future.

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