One in five Aussie retail investors have abandoned the ASX, says eToro

Australian investors are increasingly looking beyond the ASX, with a sharp drop over the past year in the proportion holding locally listed stocks.

More Aussies are heading for the ASX exit. Picture: Thinkstock

The proportion of Australian retail investors holding locally-listed stocks has fallen by 20 per cent in the past year, says eToro.

According to the trading and investing platform’s latest research, while local equities are out of favour somewhat, the popularity of asset classes including foreign bonds, commodities and FX has firmed, reflecting the generally anxious state of global markets.

The findings – taken from a quarterly survey of 10,000 retail investors across 13 countries – indicate after more than a year of turbulence, Australian retail investors are changing their ways.

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“They are looking further afield for opportunities in different markets and asset classes, with less ‘home bias’,” the report suggests.

The data shows older Aussie investors exhibiting a stronger home bias, and more inclined to invest in domestic equities.

For Aussie retail investors aged 55 and above, a full two-thirds are currently invested locally.

That falls to 56 per cent for those aged 45-to-54.

This number continues to decline with the fickle-hearted cohort of younger investors.

The eToro report found that among retail investors aged 35 to 44, 40 per cent were invested in domestic equities, with only 31 per cent of 18-to-34-year-olds having a stake in the local market.

This decline in ‘home bias’ among younger Aussie retail investors indicates a generational shift to diversifying portfolios with foreign equities and bonds, the study found.

We still hold more local interest than global peers

The percentage of Australian retail investors with exposure to domestic equities has fallen from 64 per cent in Q1 2022 to 51 per cent in Q1 2023 (20 per cent or 13 percentage points). Despite this drop, Australian investors continue to be among the world’s most invested in home grown equities.

The move away from the home equity market is more prevalent in the US, where the proportion of retail investors holding domestic equities has fallen from 60 per cent in Q1 2022 to 42 per cent in Q1 2023 – a 30 per cent, or 18 percentage point, drop.

By comparison, in the EU, there are stark country-by-country differences, but the proportion holding domestic equities has remained stable at 45 per cent.

The Spaniards betrayed a pronounced decline in home bias down 21 per cent, with 37 per cent holding domestic equities, while Italy, Poland and the Czech Republic bucked the trend at 38 per cent 45 per cent and 35 per cent respectively.

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Analyst totally unsurprised

Josh Gilbert, eToro’s legendary Sydney-based market analyst, says it’s no surprise to see investors looking overseas to diversify their portfolios and tap into global investment opportunities.

“The ASX 200 was one of the world’s best performing markets last year, but this year, the local market has underperformed when compared to the US or Europe.

“It’s also never been easier or cheaper for investors to take advantage of the diversification and investment opportunities in the rest of the world, with more ETFs and commission-free investing”.

While domestic equities have declined in popularity, the proportion of Australian investors holding stocks in foreign-listed companies has shrunk minimally, with only a 5 per cent decrease since last year.

Pronounced rises have been seen in markets such as the US (25 per cent increase) and the UK (12 per cent increase), with the EU making a 7 per cent increase.

Lacklustre markets drive diversification 

After 15 months of faltering markets, Australian retail investors are increasingly diversifying into different asset classes; the percentage holding commodities has jumped from 16 to 29 per cent, those with foreign bonds has risen from 7 to 11 per cent, alternative investments (for example, real estate) are up from 24 to 25 per cent.

Those with FX exposure have almost doubled to 15 per cent, while those into crypto have remained steady at 23 per cent.

Where investors are putting their money. Source: eToro

“It’s surprising to see Aussie investors increase their commodity exposure given the asset’s weakness this year, but I think we’re seeing plenty of optimism from investors over the reopening of China,” Gilbert said.

“Australian investors know very well that China will be looking to Australia to restock on commodities after years of limited trade, particularly when it comes to copper and iron ore.

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“Iron ore is Australia’s most exported commodity and is one of just a handful of commodities in the green this year, so the increase in exposure, although broadly surprising, makes a lot of sense.

“This latest survey also shows a rise in investors holding international bonds in their portfolio compared to last year. This may be a smart diversification move, with bond yields now the highest in over a decade, after their dramatic price falls last year.”

Aussies confident, despite economy, inflation

The latest Retail Investor Beat also found that Australian retail investor confidence has remained the same since this time last year, with 76 per cent being confident in their portfolios, same as last quarter, and in Q1 2022.

More than half (59 per cent) have not changed their investment contributions yet in 2023.

In terms of risks, the state of the Australian economy is now the biggest perceived threat among retail investors, with 20 per cent citing this, while inflation (19 per cent) has risen to become the second biggest perceived threat.

This content first appeared on stockhead.com.au

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