Investors’ concern levels have fallen to a 40 month low, boosting an increase in market expectations and demand for direct commercial property investments.
Falls in investor fear throughout 2012 were not translating into higher return expectations and the intention to invest until now, according to new research by Investment Trends.
The January 2013 Investor Intentions Index, released last week, is a monthly report that takes the pulse of Australian investors’ sentiment and investment intentions, and is based on the responses of more than 800 investors. Investor concerns have been dropping since late 2011, and they are now at a 40-month low.
“Up until the end of 2012, this decline in fear levels had not translated to an increase in investors’ 12 month market return expectations, which have been hovering around the 3% to 4% mark (excluding dividends) since the beginning of 2012,” said Investment Trends Senior Analyst Recep Peker. “Now, for the first time, we have seen a big spike in investors’ market return expectations.”
ME Bank’s latest Household comfort Index supported these claims. According to the index, only 7% of households have bought stocks, bonds or managed funds during the past six months to December 2012. However, retirees reported the highest financial comfort at 6.08 out of 10 – up 4% from June 2012, largely due to an increase in comfort with investments, reflecting the rebound in the Australian share market.
In January, the average investor was expecting the Australian stock market to rise by 7% (excluding dividends), jumping up from 5% in December. This corresponds to a rapid improvement in the stock market.
“Return expectations don’t predict returns, but they do predict investment activity, therefore this is a huge development,” said Peker. “January is the most positive we have seen investor return expectations in the last 20 months.”
With the cash rate dropping to 3%, and markets globally beginning to improve, the wall of cash invested in term deposits has begun to leak back into the market looking for a higher yielding home. Increasing investor confidence suggests those invested in cash will be actively looking for new opportunities in 2013, increasing demand for quality direct commercial property investments, said Charter Hall, one of Australia’s largest property investment managers.
The company said institutional investors, SMSFs and high-net worth individuals are already driving demand for low-risk, securely-leased assets with strong returns as they chase yields and security of cash flows.
Peker said half (49%) of investors planned to increase their exposure to Australian shares in the next month, up from 37% in December 2012.