Australian investors’ appetite for domestic equities is at odds with their lack of confidence about the local economy, new research has found.
In a survey of 600 investors, Goldman Sachs found a concerning number of investors are increasing their holdings in Australian equities despite low confidence in Australia’s economic outlook.
Goldman Sachs managing director and head of third party distribution for the Asia Pacific, excluding Japan, Jessica Jones said retail investors appear to be ignoring important macro themes as they set investment intentions.
“The survey revealed a clear and concerning disconnect between confidence in the domestic economy, which was low, and confidence in the outlook for domestic equities, which was high,” Ms Jones said.
“Of particular concern was the fact that those aged over 65, who should be focused on reducing investments in high-volatility assets, were in fact the most likely to have an allocation to domestic equities.
“Further, more than 36 per cent of this age group intended to invest more capital in this asset class in the next 12 months. At the same time, less than a quarter of this age group (17 per cent) had direct fixed interest allocations, an asset class which provides important diversification benefits,” she said.
Ms Jones also said it wasn’t clear what is driving this “equities bias” amongst investors, and pointed out that they don’t see the benefits of diversifying into other asset classes or geographies at a time when confidence in Australia is low.
“Another possibility is that investors believe they can manage risk by holding diversified stocks within their equities portfolio, but we would caution investors that this type of approach could leave them vulnerable to sharp market downturns,” Ms Jones said.
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