Investors down in the dumps

Investment sentiment has suffered its largest drop since a slump in October 1994 to February 1995.

The Challenger/Assirt Investment Sentiment Index has found that Australians have adopted a generally gloomy view of the economy which has translated into a reluctance to pursue share trading and a decreased enthusiasm towards managed funds.

Sentiment was found to have dropped eight percentage points and is attributed to the perception that the economy is weakening, which Assirt chief executive Krystyna Weston says has been reinforced by the "bad press about the economy in general".

Broken down into more specific categories, sentiment relating to overseas investments rates lowest of all, while sentiment relating to investing in shares and managed funds is at its lowest level since October 1998.

And if that isn't gloomy enough, share investors aren't transferring their investment activity into cash related assets, which is normally the pattern when there is a swing away from shares. The study suggests that low interest rates and the low dollar is possibly warning investors away from cash investments.

The survey also revealed a very low level of understanding of superannuation. This is especially the case among low income earners and women, where half were unaware of the proportion of their earnings banked in their compulsory superannuation plans. Weston highlights this as the most disturbing finding of the survey.

But Weston points out that low sentiment doesn't mean fund flows in investment are low by necessity, although it could be like a smoke signal of trouble to come.

"Funds flow has slowed, but not dramatically," Weston says.

"Usually we find a lag of one to two quarters of markets behind investor sentiment. I'd want to see the June quarterly figures before making a judgment about how much of an impact investor sentiment has had on the market."

However, Challenger executive director John Barry says investors may be waiting for the right time to re-enter the market.

"In addition to the economic factors there may also be a general holding back among investors in coming months," he says. "In an election year, a 'wait and see' attitude about the best path to follow is prevailing."

Small consolation to emerge from the survey was that Australians' sentiment toward investing in their own home remains relatively stable, with 'our home' being the most favoured investment type.