Aussie investors spooked

Australian investor sentiment has dropped sharply as poor investment returns drive investors into safe haven assets, according to the quarterly ING Investor Dashboard Sentiment Index.

Australia is now second last of 12 countries in the Asia-Pacific region in June 2010, down from equal second position in positive sentiment in March.

The survey of 3,792 investors included 307 Australian investors with liquid assets of US$100,000 or above.

Only 46 per cent of Australian investors expected higher returns over the coming quarter, down from 75 per cent three months ago.

The prospect of higher interest rates also contributed to falling sentiment, with 70 per cent believing any rate hike would have a negative impact on the economy.

Many Australian investors viewed a US economic recovery with caution but INGIM head of distribution and deputy chief executive Martin Donnelly warned of the downside of being too cautious.

“Investors with an overly bearish outlook for the US economy run the risk of missing out on return upside from Australian companies which are leveraged to a US recovery, which is our expectation,” he said.

INGIM expected a US recovery, signalled by improving productivity and profits, and noted Europe is also less of a concern in the short term, with two-thirds of Australian investors believing the European debt crisis will not affect their investment strategy. More than half still expected Europe's ongoing problems to have some impact on global economic growth in the long term.

Prospects in China were still buoying Australian sentiment, although investors from other countries were more concerned about China’s chance of overheating.

More than a third of investors expected further share market falls, which was driving a shift to safer investments such as cash, gold and bonds, with only a third of investors considering high growth investments.

“The ongoing volatility in the Australian equity market has had a big effect on investor confidence and we expect many to retreat to the sidelines for the remainder of the year,” Donnelly said.

Despite the recent slowdown, the Australian share market should continue to rise. “Last year was a beta year. 2010 is shaping up to be an alpha year where true stock selection will be paramount,” he said.