In their June CIO Investment Index – which gauges the sentiment of CIOs towards the investment environment over the next 12 months – they found that only 60 per cent were expecting strong performance from Australian equities, compared to last month where 91 per cent thought strong or very strong returns were likely in the asset class.
“What we are seeing this quarter is that the strong, positive view of equities from CIOs that has underpinned market confidence in previous quarters has waned,” James Bond, FSC chief economist said. “This is because CIOs saw equities as being undervalued and well priced in 2011 and 2012. However, there is a general view that the markets are now ‘more fully priced’.”
More broadly, the index – which ranges between minus and plus 100 – fell to seven points for the month of June, a drop of 28 points on the previous month, and the lowest level recorded since September 2012.
Even though the appeal of equities has dropped, they are still seen as considerably preferable to most other asset classes. This reflects the low levels of confidence of CIOs in international, domestic fixed income and cash.
“Despite recent market conditions and the drop in confidence, CIOs still expect equities to outperform other asset classes over the coming 12 months,” Mr Bond stated.
The biggest concerns for CIOs was around the “mode, direction and extent of monetary policy intervention” of central banks. In particular, there was a lot of concern around if the Fed could “get it right” in ending its quantitative easing programme. As one CIO stated in the survey, “The greatest risk is central bank intervention... or not”.
