Investor confidence resilient through COVID-19 crisis
Small investors are hanging on to hope ahead of what’s expected to be a major test of confidence when full year results. start rolling in.
Retail investors have broadly looked through the lockdowns and investment turmoil caused by the coronavirus crisis, with sentiment dipping only slightly on a year ago, according to a new survey by a peak body for chartered accountants.
The top-level findings from the study released by Chartered Accountants Australia and New Zealand show that 82 per cent of mum and dad investors are confident in publicly listed Australian companies, while 79 per cent have confidence in the local capital markets.
Confidence levels are only marginally lower than last year’s survey and are based on the belief that the economy will recover well from COVID-19, as well as faith in the ASX’s history of bouncing back and high level of confidence in the government.
“This level of investor confidence is more than surprising in the face of what the OECD has described as the most severe economic recession in nearly a century,” CA ANZ’s Reporting and Assurance Leader Amir Ghandar said.
“A sense of optimism has clearly been growing as the nation weathered the pandemic, but uncertainty remains as to the speed and depth of an economic recovery.”
Overseas uncertainty
The faith in Australian markets stands in contrast to the view of investing overseas, with over one third of investors saying they have very little or no confidence in international capital markets, down 12 per cent from last year.
But the higher-than-expected confidence in the local markets could be the calm before the storm, Mr Ghander warned.
“Retail investors tend to react less rapidly to changes in conditions than professional investors. It looks like they’re still holding out hope, but we’re concerned that later this year, as companies start reporting (their full-year results) and as relief starts to wind back, we’re going to see that confidence significantly put to the test,” he told The Australian.
Mr Ghander expects shareholders to pore over financial reports with a more critical eye in the coming months.
“As we kick off company reporting season, these results show us that while shareholders will still be looking at explanations from chairs and CEOs, they will also be probing whether what they are hearing aligns with the financials in terms of going concern uncertainties, asset carrying values and other assumptions.”
More than half of investors are expecting “a great deal” or “quite a bit” of additional disclosure in this year’s financial statements, with a focus on the impact of COVID-19 on operations and results now and in the future, the survey found.
The annual study, the second of its kind from CA ANZ, also showed that more than 80 per cent of retail investors believe independent auditors provide the most effective safeguard for the protection of investors in the Australian financial system.
The survey was taken between June 12 and June 23 this year, right around the time when the scandal surrounding German digital payments company Wirecard was erupting. Auditor EY is facing legal action for signing off the company’s accounts over a number of years and for failing to request crucial information that could have exposed the fraud.
Mr Ghander said the CA ANZ survey showed that investors wanted auditors to do more in the area of fraud detection. CA ANZ’s submission to the parliamentary inquiry included recommendations that auditor training on fraud detection be enhanced.
“Criminals are getting smarter so audit work has to evolve alongside that. Case study-based training on detecting very elaborate fraud and what the latest frauds are is something that will continually evolve,” he said.