Investors look to international assets: CGIII

Net demand for international assets reached a six month peak in January, according to the latest Certitude Global Investing Intentions Index (‘the Index’) released today. The Index, which tracks net demands for global investments, rose to 182 points in January, its highest point since inception.

The Index is one part of the Certitude Global Investing Intentions Index Report, produced each month by Investment Trends, which collates the views of over 800 actively engaged leading investors.

This month’s results indicate that global investments, particularly shares, hold a strong appeal for local investors in 2014.

One in four (25%) leading Australian investors¹  plan to increase their exposure to international shares within the next month, the highest proportion seen since September 2011.

Craig Mowll, CEO of Certitude Global Investments said: “It is quite remarkable that, despite a falling Australian dollar and a predicted slowdown in Asia, local investors indicate a strong sense of optimism towards international investment prospects. It is promising to see that Australian investors are looking beyond our shores and have recognized the excellent growth opportunities that come from diversifying overseas. International shares in particular hold intense appeal to Australian investors, according to this month’s report, with one in four investors planning to increase their exposure to this asset class. Moreover, investors are planning to make these investments sooner than ever before.”

The intended timing of investors looking to allocate offshore continued to shorten to its smallest since inception. Nearly half (47%) of those intending to allocate offshore plan to do so within the next three months, up from 41% last month.

US/North America seen as land of milk and honey

The US/North America increased in popularity by 8% points in January, the upswing firmly positions this region as the number one choice for those looking to invest offshore (52% name it as their preferred region). ‘International funds covering multiple regions’ remains the second choice.

Australian investors may be attuned to recent reports of a pickup of the US economy due to a number of reasons including an increase in consumer spending, rebounding capital spending and exports. International funds covering multiple regions has been of consistent interest in the Report as it provides investors who are not comfortable with selecting a specific region access to investments offshore.

Rounding out the top five most popular regions are Asia, Western Europe and China, all of which saw rising interest from investors in January.

Mr Mowll said that regardless of the debate on China, it remains firmly on the radar of Australian investors.

“It is also interesting to note that interest in Western Europe is at its highest point since the report began. Investors evidently feel more confident in developed markets than in the past. Correspondingly concerns over sovereign debt problems in Europe have significantly decreased – where once this was the number one barrier for investors looking offshore, this month only 9% cite it as their main concern.”

Australian investors continue to lack sufficient knowledge in international investing

In line with investors’ peaked intentions to invest offshore, their concerns over market and exchange rate volatility have dropped. While market volatility has consistently been the most commonly cited barrier to investing overseas, this month it fell 6% points to its lowest point since May 2013.

Meanwhile, the most commonly cited barrier in January to investing internationally is lack of knowledge – with 23% of investors saying they ‘don’t know enough about it’.

Commenting on these findings Mr Mowll said, “The cumulative results of this month’s CGIII Report paint a very coherent picture of investors’ bullishness towards global investments, with intentions to invest overseas at a high point and market and exchange rates concerns at a low. However, we recognise that many Australian investors need to feel more informed before making the decision to invest offshore.”

January CGIII – Key Findings

1. Net demand for international assets is at its highest point since inception – the Certitude Global Investing Intentions Index rose 3% to 182 in January (up from 177 in December).
2. 1 in 4 investors plan to increase their exposure to international shares within the next month, up from 19% in December. This is the highest proportion seen since September 2011.
3. The US/North America saw a significant bounce back as the preferred market among more than half (52%) of those planning to invest offshore, up 8% points from December. Meanwhile Asia, Western Europe and China all increased in popularity.
4. The time horizon for investing offshore continued to shrink, with nearly half (47%) of investors planning to make international allocations in the next 3 months. This is the highest proportion seen since inception.
5. For the first time since May 2013, market volatility is no longer the most common barrier to investing offshore. 19% of investors named this as a concern, the lowest proportion since inception. Meanwhile, ‘lack of knowledge’ became the most commonly cited barrier to international investing.

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International share returns solid for 2013.

While 2013 isn’t quite over yet, global and emerging markets have returned far greater results than one would have expected at the start of the year.  One year returns (as at 30 September 2013) for the MSCI World ex Australia and MSCI Emerging Markets indices (in $A) were 34.0% and 12.3% respectively.

Bronwen Moncrieff, Head of Research at Zenith Investment Partners (Zenith) said “I would hazard a guess that if you went back 12 months, not many people would have predicted results like this.”

International Shares is the largest sector review that Zenith undertakes.  Zenith’s 2013 International Shares review includes Global (unhedged and hedged), Global Emerging Markets, Global Small Cap, Country and Regional funds (Asia ex Japan), Global Listed Commodities, Global Private Equity.  The sector review also considers the key issues likely to face the asset class in the coming years.

“The impact of globalisation continues to influence the way companies structure their businesses and the way investment managers research and assess the likely success of those structures.  Increasingly, companies have sought to expand or develop their operations by targeting exposure to the thematic of changing global demographics – specifically, changing consumer preferences and rising wealth of the urban middle class within emerging market economies”.

“We think this is only going to become more pronounced.  Going back five or ten years, the level of company reporting on where revenues were sourced from was limited.  Now, it has almost become standard.  It goes without saying, where a company is listed is becoming less and less relevant.  It is all about where revenue and revenue growth is sourced from.”

“Overall, managers have generally fared well.   Within emerging markets, while an annual index return of just over 10% is nothing to be sneezed at, the difference in returns versus the global index certainly begs the question why?”  Managers covered in the review consistently pointed to the managed slowdown of economic growth in China, high wage growth in a number of emerging market economies and high inflation all being contributors to the relative underperformance”.

“On the positive side of things, managers also noted that the sector maintains a number of attractive characteristics.  For example, growth rates generally in excess of those for developed markets, ample room to implement fiscal and monetary stimulus if required, significantly lower levels of debt than many developed markets, and attractive valuations.”

“Currency has also been a big contributor to a client’s overall return.  The difference in the one year return (ending 30 September 2013) between hedged and unhedged versions of the MSCI World ex Australia index was 8.7% – to the benefit of the unhedged investor.  While the $A has certainly declined over the last 12 months, if you consider the level of the $A in terms of long run purchasing power parity, valuation continues to remains on the high side.  While we certainly don’t advocate investors making active currency decisions based on near-term currency predictions,  clearly there are risks over the short-term given the volatility of the $A.”

Zenith’s International Shares Sector Review represents the largest sector review undertaken by Zenith.  Of the 101 global, regional and specialist funds that took part in Zenith’s International Shares Sector Review, 16 funds achieved Zenith’s top rating.

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