Cash is still king, or is it? Advisers are battling with continued risk aversion among clients, which is causing them to sit on the sidelines while they await signs that the global economic environment has stabilised.
This is despite the fact that in Australia we are likely facing a declining interest rate environment, with the Reserve Bank of Australia (RBA) expected to cut rates to boost consumer confidence and spur the slowing domestic economy.
The latest data from CoreData’s Investor Sentiment Index reveals one in four investors (25.3%) expect cash investments to perform better in the next three months, while the same proportion (25.9%) expect them to perform worse.
But while investors are somewhat polarised with regards to the outlook for cash, it remains the asset class investors are more likely to rebalance to, with one in four (25.8%) investors looking to rebalance to cash in Q2, down slightly from 27.0% last quarter.
The ‘sit on the sidelines’ approach means investors risk missing out on the upside when markets recover, a recovery that on a global scale, looks as if it might have already begun.
As burningpants reported in March, over the three years of post-GFC recovery since February 2009, the ASX 200 has grown by 28.6%, at an annualised rate of 8.7%.
The US S&P 500, on the other hand, has gained 85.8% over the same period, at an annualised rate of 22.9%, while the Hang Seng in Hong Kong has grown 69.2% at 19.2% p.a, and the FTSE 100 in the UK has grown 53.3%, at 15.3% p.a.
The long-term case for being invested is clear, however, fear and uncertainty continue to pervade the minds of the consumer, leaving advisers stuck between a rock and a hard place.
All they can do is ensure clients are informed and educated about their options and are aware of the downsides of using cash as a long-term risk reduction strategy.
Meanwhile, while the RBA is expected to cut rates in the short term, ANZ last week bumped its variable interest rate up 0.06% to 7.42%, suggesting further dislocation could result between the central bank and Australia’s big four in the short term.
Traders are betting the RBA will cut 95 basis points from the 4.25% target cash rate over the next 12 months, according to the Overnight Index Swap curve.