Australian investors remain pessimistic about the prospect of full market recovery, with their concern levels rising while return expectations are decreasing.
According to an Investment Trends survey, concern levels tipped up to 6.6 out of 10 last month, which is regarded as relatively high given that those levels were at 7.4 at the height of the global financial crisis.
Chief operating officer Eric Blewitt said the concern was driven by recent volatility, the events in Europe and potential future market volatility.
Blewitt said this had resulted in a fundamental recalibration of investors' capital return expectations.
"This means that when we actually try to establish what investors' views are on capital returns from the markets, we only get expectations of about 4 per cent in the coming year," Blewitt said.
"When we start to look at that over the longer-term period of five years, it doesn't increase much - it's just under 4 per cent per annum," he added.
As a result, around 17 per cent of the 1,050 respondents to the Investor Intentions Index Report are willing to increase their allocation to cash.
Furthermore, sentiment towards investing in residential property has also dampened. Around 60 per cent of respondents believe that residential property is overvalued, Blewitt said.
This sentiment comes after The Economist magazine reported the Australian housing market was overvalued by 36 per cent (being beaten only by six other nations) and the Reserve Bank of Australia governor Glen Stevens warned that thinking property prices could not fall was a dangerous idea.