With cash-related investment products recently having offered their highest interest rates in more than a decade, Australian investors have been reaping the risk-free benefits, with 42 per cent of their current asset allocation in cash savings and term deposits. And while cash rates may remain high in the short term, it appears investors are starting to look ahead to the risk-asset opportunities expected over the next 6-12 months. This is according to Fidelity International’s Asia Pacific Investor Study, which aims to provide a picture of today’s investor across Australia, Japan, Singapore, mainland China, Hong Kong and Taiwan.
Following a tumultuous few years of market volatility and increased inflation, investors across the region have mixed feelings about their financial situations. Investors in most markets describe their financial situation as ‘comfortable’, with the exceptions of Japan and Taiwan where respondents are more likely to feel they are ‘coping’. In Australia, while 68 per cent of investors indicated they feel ‘comfortable’ about their financial situation, cost of living pressures appear to have driven the number down by 7 points in the past year, most pronounced amongst those aged 45-69 where 43 per cent are either ‘coping’ or ‘struggling’ (versus 29 per cent in 2023).
In terms of asset allocation, Australian investors generally have a higher risk appetite compared to the other markets surveyed within Asia Pacific, leading the pack when it comes to allocating to foreign currency (highest across all markets), stocks (second highest behind Japan), commodities (highest), bonds (highest), and digital assets (highest). The top three asset classes for Australian investors are stocks (owned by 63 per cent of investors surveyed), term deposits (38 per cent), and insurance related products (38 per cent).
When asked for their top investment priority, more than half (57 per cent) of Australian investors are focused on long term capital accumulation and almost a quarter (23 per cent) invest to generate a regular income. In terms of investment time horizon, 29 per cent are investing with a period of more than 5 years in mind, 16 per cent for 3-5 years, and just 6 per cent are investing for less than 6 months. Regardless of their investment objectives or timeframe, investors expect an annual return of 8.8 per cent per annum, the second highest percentage across Asia Pacific, only trailing expectations from investors in Taiwan (9.5 per cent).
Lawrence Hanson, managing director, Australia, at Fidelity International comments: “Clearly cost of living pressures will remain for Australian investors through the rest of 2024. However, it is encouraging to see that investors are also thinking about the medium to long-term when they invest. Having a longer investment time frame allows investors to look at the bigger picture and not be concerned by periods of volatility through their investment journey.”
Moving beyond cash… in time
While cash-related products may retain their appeal in the short term as uncertainty remains on the Reserve Bank of Australia’s next interest rate move, intentions within the next 6-12 months reveal a more risk-on positioning. Looking 6-12 months ahead, 50 per cent of Australian investors surveyed plan to decrease their cash holdings to deploy capital into other investment products. 59 per cent intend to increase their investment in equities which have historically benefited from interest rate cutting cycles, just slightly less than investors in Taiwan (61 per cent) and in Singapore (60 per cent). Additionally, 73 per cent of Australian investors are looking to invest in income producing assets, with 24 per cent specifically looking to boost their allocation to bonds.
However, in spite of this relatively confident medium-term stance, 55 per cent of Australian investors indicated they will still invest with caution in the coming year due to uncertainties in the external environment.
Mr Hanson says: “It is positive to see that the majority of investors are actively considering investment opportunities outside of cash products in the next 6-12 months, such as equities and bonds, in order to capture the next market cycle. While cash is great for maintaining liquidity and flexibility, having too much on the sidelines in a global rate cutting environment can potentially hurt overall financial returns. With most investors primarily investing for long term capital accumulation and expecting an annual rate of return almost 9 per cent, looking at options beyond cash will be critical.”
Building a diversified portfolio to prepare for what’s next
Driven by strong recent market performance, it is not surprising that the US is the most popular international market for Australian investor portfolios in the next 12 months (35 per cent), followed by Global (33 per cent) and Europe (23 per cent). The study also suggests that investors here are building diversified portfolios through an average of three types of financial products. Allocating into different products and markets can contribute to improve performance and reduce risk.
When asked about actively managed Exchange-Traded Funds (ETFs), 56 per cent of Australian investors indicated a plan to increase their allocation to actively managed ETFs in the next 12 months. This is due to the belief that actively managed ETFs allow greater flexibility to adapt to fast-changing market conditions, as compared to passive ETFs (65 per cent), and can potentially deliver better performance (60 per cent).
