Chief investment officers have slipped into negativity about the future, the Financial Services Council’s (FSC) index shows.
For the first time since the survey began in September 2010, CIOs are now in the negative zone on a scale of -100 (worst possible sentiment) to +100 (best possible).
The investment outlook for next year was -2, down from 16 in March this year, and 20 in December last year.
FSC chief executive John Brogden said Europe’s sovereign debt crisis was outweighing the positives in Australia and Asia.
“While fund managers had remained positive overall during the European crisis as it unfolded through 2011,” he said, “the latest machinations have seen overall sentiment dragged into negative territory.”
The index showed that, while the outlook for Australian equities had receded marginally since March, it was still very positive. But, lower sentiment for international and domestic fixed income was dragging heavily on confidence.
Europe weighed heavily on the minds of CIOs, but the risk of contagion to China mentioned in the December and March surveys had dissipated. While slower Chinese growth remained a concern, most CIOs saw this as a risk over the coming five years rather than the coming 12 months.
Long-term (five years), deleveraging sovereign debt in Europe and the US were seen as the greatest risk.
The CIOs’ sentiments were most pessimistic about fixed income: Australian at -45 and international -37. They were most positive about equities, both Australian and international at +25.
CIOs did not see much movement in property over the coming year, with most neutral on domestic and international property.
The recovery in the US economy which featured in the result for March had solidified as a positive development for CIOs. Despite falls on domestic and global equities markets in May, CIOs believed company balancesheets remain strong and, when coupled with lower equities prices, were making equities “good value”.
The deleveraging of sovereign debt in Europe and the US and associated austerity measures were the most cited risks for the next five years.
In particular, there was a concern that the deleveraging of sovereign debt could see a long period of slow growth similar to the experience in Japan.
