Australian retail investor confidence has fallen but 66 per cent are still confident in their portfolios
Investors are more defensive, holding cash and energy stocks
Australian retail investors are prepared to ride out the storm, 66 per cent hold investments for years or decades
Two in five (41 per cent) Australian retail investors who are reducing the amount they invest say they are doing so to help cover the cost of rising household bills – but sentiment for the fourth quarter appears more bullish, according to the latest ‘Retail Investor Beat’ from social investment network, eToro.
The study, a quarterly survey of 10,000 retail investors across 13 different markets, of which 1,000 are from across Australia found that around one in three (29 per cent) Australian respondents reduced the amount of money going into investments in the last three months compared to two in five (41 per cent) globally.
Australian retail investor confidence has fallen by 17 points over the last year, from 83 per cent in Q3 2021 to 66 per cent in Q3 2022. Globally, there has been a decline in retail investor confidence, which has also fallen by 17 points over the last twelve months, from 81 per cent in Q3 2021 to 64 per cent in Q3 this year.
Of the Australian retail investors cutting back on investments, 41 per cent are doing so to pay for rising household bills, 32 per cent are doing so to build up emergency savings and 29 per cent are holding onto cash so they are ready to invest when markets start to rebound.
Despite worsening market conditions eating into confidence, Australian investors looking to reduce the amount they invest in Q4 is expected to ease to 19 per cent, with 81 per cent either planning to invest the same amount of money or more over the next three months suggesting Australians are feeling more bullish about Q4.
“Australian retail investors are facing a cocktail of harsh market conditions, rising bills and more punishing mortgage rates from the RBA – so it’s little wonder why many have changed their priorities,” says Josh Gilbert, Market Analyst at eToro.
“Confidence has unsurprisingly taken a hit over the last year but what is clear is Australians still understand the importance of consistent investments. Around 70 per cent of Aussie investors have continued to invest during this bear market compared to just 59 per cent globally. The fact that they are investing as well as building emergency funds shows that they are aware of the current economic risks but see the value of staying invested in this market. Compared to global counterparts, Australia’s economy is looking robust, with a recession avoidable and this is likely the reason why Aussie investors have more conviction right now.”
With only 16 per cent of Australian retail investors worried about their national economy, the state of the global economy emerges as the biggest concern for Aussies, with 25 per cent citing it as the main risk to their portfolios. This is followed by rising inflation (18 per cent), which remains the biggest concern for global retail investors (23 per cent).
Given these risks, many are pivoting to a more defensive stance, with those holding cash jumping from 32 per cent to 60 per cent in a year, while the number of investors holding energy stocks, traditionally a hedge against inflation, is set to rise 2 per cent in the next three months (to 43 per cent). Meanwhile, those retail investors with money allocated to the financial services and industrial sectors (both typically cyclical and non-defensive) are set to drop from 62 per cent to 58 per cent, and 48 per cent to 44 per cent respectively.
The data also shows that the majority of Australian investors have a long-term mindset, with two-thirds (67 per cent) looking to hold an individual investment for a time frame of years or decades, whilst just 4 per cent identify as day traders. Supporting this, a third of respondents (43 per cent) highlight securing long-term financial security as their main goal for investing.
“Maintaining a long-term perspective gives you a huge advantage in volatile markets and could give this group an edge over institutional investors. It is also a very different picture to the one often painted of retail investors, as FOMO-driven speculators, or dumb retail money buying high and selling low,”
“The explosion of retail investors in 2021 transformed the status of this ever-growing section of the market. Yet misperceptions persist of retail investors as short-term day traders who don’t understand the markets. This clearly isn’t the case, with most holding onto assets for years, whilst also responding to market conditions when necessary by adjusting their portfolios.” says Ben Laidler, Global Markets Strategist at eToro.