Craig Mowll

Australian active investors continue to clamour for overseas investments, and high net worth investors[1] are leading the charge, according to the Certitude Global Investment Intentions Index (CGIII).

The CGIII, which collates the views of over 600 actively engaged investors and measures their demand for global investments, increased again this month to 186 (out of 200), on par with the all-time high last recorded in April 2014. Demand from high net worth investors (197) was even stronger in February, attaining its highest level since the inception of the CGIII in June 2013.

Annual capital gain expectations from global markets increased by 2% pts to 5% this month, but concern about the domestic economy deepened. Only about a fourth (28%) of investors believe that Australia’s economy will record healthy growth in the next 12 months, down from 32% last month, while nearly half (44%, steady) say they need more international assets in their investment portfolio.

Craig Mowll, CIO of Certitude Global Investment said: “What is really interesting is that the record demand for overseas assets this month coincides with the Australian dollar hitting a five year low against the greenback. This appears to be contradictory at first glance, because one would expect a weak Aussie dollar to constrain, rather than increase, investment in overseas markets.

“However, when investors were asked about the most appealing international markets, it became clear that they are taking the effect of exchange rate movements into account. Demand for US investments fell sharply among those who intend to invest overseas, from 53% to 45% this month, as did demand for assets in Western Europe, from 25% to only 18%. On the other hand, the attraction of investments in Asia rose significantly (from 13% to 18%), as the Aussie dollar performed better against the renminbi.

“Australian investors evidently want more international assets generally, but are considered in their decisions about the international markets they choose, incorporating expectations around exchange rates into research about which overseas markets offer the best value.”

When investors were quizzed about the asset class they favoured for their international exposure, equities were once again the clear favourite, and gained more ground this month. Ninety-one per cent of investors said they intend to invest (more) in equities, compared with 85% last month. Infrastructure was the next most popular option, at 11%, followed by property, at 10%.

Mr Mowll explained: “Equities have consistently been far and away the most popular option for Australian investors seeking overseas exposure, and this month was no exception. What was interesting was the fact that demand for the majority of other investment options fell across the board. It’s clear that more and more active investors are focused on international equities to the exclusion of other options, including infrastructure, property, fixed income and private equity, all of which went down.”

This month’s CGIII also revealed that exchange rates are very much top of mind for Australian investors. When they were asked about what currently stops them from investing (more) overseas, 26% cited exchange rate volatility as a barrier, up 4% pts from last month. Market volatility (21%, down 2% pts) continues to worry investors this month despite a slight decrease from the previous month.

Mr Mowll concluded: “Australian investors may be looking beyond their usual stamping grounds of the US and Western Europe on the back of a weaker exchange rate, but this clearly hasn’t seen them shun global markets altogether. In fact, what we may be seeing is a sharper focus on regions where they see better value, such as Asia. The US is still very much the preferred international market, but Asia is now on par with Western Europe, and fewer investors cited a slowdown in China as cause for concern this month compared with last month.

“The bottom line is that despite some concerns about specific markets and investment options, Australian investors have once again revealed themselves keener than ever to invest overseas, and bullish on the possibilities on offer in global markets.”

February CGIII – Key findings

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Craig Mowll

Nearly half (44%) of all investors believe they need more international assets in their investment portfolio, according to the Certitude Global Investment Intentions Index (CGIII). The CGIII, which collates the views of over 560 Australian actively engaged investors and measures their net demand for global investments, increased by 3% to a 9 month high this month, and is now at its second highest level since inception in June 2013.

While investors’ 12-month capital gain expectations from global markets increased in January, only 32% of investors said they believe Australia’s economy will record healthy growth in the next 12 months, indicating that nearly 70% of investors do not expect healthy growth.

Craig Mowll, CEO of Certitude Global Investment said: “It is not surprising to see demand for overseas assets at its second highest level since inception of the CGIII. Clearly investors remain fundamentally concerned about the strength of the Australian economy and are looking to cast their net further afield.

“And it seems that the RBA agrees. The recent decision to cut official interest rates would appear to indicate that investors aren’t the only ones concerned about the strength of our economy.”

When it came to international markets of most interest, the US/North America again remained far and away the most popular. Over half (53%, up 7% pts from December 2014) of investors interested in investing overseas chose this option. The second most popular option was international funds covering multiple regions (38%, up 6% pts), but Western Europe (25%, up 8% pts) also rose sharply month-on-month.

It was also revealed that investors are looking to act sooner rather than later. Intended timing of overseas investments remained short with 46% (down from 52%) of those interested in investing overseas saying they would like to do so in the next three months.

Mr Mowll commented: “While interest in North America (53%) and Western Europe (25%) is at its highest level since inception in June 2013, demand for Asian (13%, up 1% pt) and emerging markets (10%, up 1% pt) rose only very slightly. When these results are set against the backdrop of a rising greenback and slowing growth in emerging markets, it appears that investors may be looking to re-orient from riskier options, and focus on developed markets.

“Indeed, when they were asked what they were most concerned about in relation to their investments, 56% of investors said another global financial crisis, up 3% from last month. This suggests that while investors may be keen to invest overseas, they are cautious about the markets they choose.

“At the same time, it was clear from this month’s responses that investors are not ignoring the issues at home. A third of investors (32%) said that their biggest concern is Australia’s debt level, 30% were most concerned about commodity prices and 25% about the exchange rate and value of the Aussie dollar.”

In terms of investors’ preferred overseas asset classes, equities were once again at the top of the list, and this month demand increased by 4% pts to 85%, the highest level since November 2013. Demand for private equity (6%, up 3% pts) also increased, whereas demand for infrastructure (14%, down 2% pts) and hedge funds (2%, down 4% pts) fell.

Mr Mowll explained: “These results reveal that investors are feeling positive about international equity markets generally. And given that private equity is essentially unlisted equity, the increase in demand makes sense, as investors seek to increase and balance their exposure to equities with a mix of unlisted and listed assets.

“In addition, many investors consider investment in infrastructure and hedge funds as a means of mitigating risk, so at times when they expect an upward trajectory in equity markets, they are less likely to increase exposure to these assets. This may be the case now.”

January CGIII – Key findings

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