Shares still considered ‘dangerous’

Those investors who were burnt during the GFC, and took on a risk-adverse profile, have missed out on one of the better share rallies this century. That’s the view of the investment editor at the Australian Financial Review, Philip Baker

Baker, who used trade bonds for Macquarie Bank in a former life,  always has a nice touch when it comes to identifying the real issues and trends amid a sea of conflicting views from stockbrokers, analysts and share promoters. So his views on where Australian investors stand in relation to the sharemarket six years on from the global financial crisis (GFC) is fascinating.

And it seems many haven’t changed their attitude in the intervening period. Five years after the worst of the global financial crisis has passed, buying a house, paying off debt and leaving money in the bank are all still viewed as the wisest place to put your money. And that’s before you consider that fixed interest deposits are barely yielding above the inflation rate, low interest borrowings have already made Australian house prices some of the most expensive in the world.

‘The bull market in shares that began two years ago has led to an increase in exposure to the sharemarket – almost double – but it is coming off a very low base and way below where investors see better options.” Baker reports.

Baker is quoting from the latest Westpac and Melbourne Institute Index of Consumer Sentiment, just fewer than 30 per cent of consumers think the wisest place for new savings is in the bank, followed by an investment in real estate at 25 per cent and then paying down debt at 17 per cent. Just fewer than 10 per cent think the sharemarket is a good idea, while only 5 per cent consider money in superannuation to be a wise move. The latter seems a strange view when most super funds have a 50 per cent exposure to sharemarkets of some kind.

On average those surveyed have rated the sharemarket a smart investment numbered 10.7 per cent so the current figure is running a little shy of that but way below the lead-up to the GFC where 17 per cent thought shares were a good investment.

While local investors have increased their exposure to shares, even if ever so slightly they are becoming sanguine about the safety of cash unlike their global counterparts. State Street has surveyed retail investors in 16 countries and it’s been reported that they have increased their allocation to cash to 40 per cent this year, up from 31 per cent in 2012. They also like land and houses in preference to shares and funds.

Baker concludes that with this much cash washing around the globe there must be more life in the sharemarket’s current bull run – up 39 per cent over the past two years in Australia including dividends and 46 per cent in the S&P500 – has further to run.

But he points to data from CommSec that suggests that retail investors in Australia aren’t as active as they were. Whether this is because of the economic situation or the confusing political picture emerging in Canberra is unknown, but in May while retail investors were still net buyers, it was at a much lower rate when compared with 2013, and since the start of 2014 the amount of buying has been reduced again.

This might help explain why the market seems stuck at 5500 on the S&P200.

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