Mixed signals about the global economy have triggered an unexpected fall in investor confidence, a report shows today.
The Investment and Financial Services Association CoreData Investor Sentiment index fell to 2.9 points in the first quarter of 2010 from a reading of 7.4 points the final quarter of 2009. The index had risen three of the four quarters in 2009.
“The index shows an unexpected decline in investor sentiment, given the markets have continued on an upward trajectory since the end of 2009,” said analyst Kristen Paech at market intelligence and consultancy firm CoreData.
Australian stocks have rebounded 55 per cent since their March 2009 lows, while the economy has effectively skirted the financial crisis, posting 0.9 per cent growth in the fourth quarter. The benchmark ASX 200 share index has risen for each of the past six weeks, placing it marginally back into positive territory for 2010, prior to today's trading.
Prospects for the local economy may hinge on how fast house prices rise and whether the pace prompts further interest rate rises by the Reserve Bank. Home prices surged an average of 13.6 per cent in state capitals in 2009.
Overseas, lingering questions about sovereign debt defaults in Europe, the possibility of a real estate and credit bubble in China, and chronic unemployment in the US have left investors wondering if commodity-exporting Australia can continue its expansion.
“People believe they are getting mixed messages about the strength of the economy and what lies ahead,” said IFSA chief John Brogden.
“While sentiment remains positive, the results indicate that investors are cautious about the sustainability of the current pace of economic growth,” CoreData's Ms Paech said.
Not so grim
CCZ Statton Equities director David Hofman, though, says current sentiment is not as pessimistic as the report suggests.
"At the moment, positive commentary outweighs negative commentary so in general confidence appears robust," Mr Hofman said.
Although the IFSA index declined in the first quarter 2010, it is 25 points above the level seen a year earlier.
"The caveat is the tendency for Australian investors (and) companies to become a little myopic as far as the rest of the world matters and perhaps there is an element of this at play currently."
Expectations retreat
The percentage of investors who expect the economy to accelerate over the next quarter fell to 50.6 per cent, down from 56.4 per cent in the forth quarter and 57.8 per cent in the third quarter.
“The reluctance to invest new money could well be the result of mortgage pressure on cash flow resulting from the consecutive rate rises,” the IFSA report said.
The average household is slightly worse off this quarter because of higher costs arising from the RBA's interest rate rises, the report showed.
The Melbourne Institute released its monthly bulletin last Friday showing that more than half of financially stressed households include employed members, with the most financially stressed members on income levels over $80,000.
czappone@fairfax.com.au
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