Investors stay conservative even as stock markets remain buoyant

A resilient share market this year has failed to stop investors’ fears and uncertainty, as other factors threaten their confidence.

Investors have become more conservative this year as high interest rates and economic worries dent their confidence despite a stronger stock market, new research shows.

Australian shares are 3.5 per cent higher than they were on January 1, but a new study by HSBC has found 29 per cent of investors have taken a more conservative approach in the last six months, while just 9 per cent have become more aggressive.

More than three-quarters of investors have changed their investment strategy, suggesting people are being proactive, but female investor numbers have dropped more than men.

And social media has lost relevance, used by just 13 per cent of investors for information compared with 19 per cent a year ago, according to HSBC’s Investor Insights Survey.

HSBC Australia head of investments Donahue D’Souza said rising interest rates and concerns about an economic slowdown had dented investor confidence.

“It has been a tough year impacting people in different ways, and we know the main focus in Australian households has been on consolidating debt,” he said.

Mr D’Souza said the fall in female investors, dropping by 7 per cent in a year, was “a little disappointing”.

“We know the industry is committed to getting female investors started early,” he said. The research found 31 per cent of women are investors compared with 51 per cent of men.

Shares have climbed this year but investors remain conservative. Picture: iStock

Increased conservatism among investors is a global trend, with a report last week by State Street finding there had been a “marked reduction is risk appetite”.

Investors’ holdings of cash climbed to 20.1 per cent in August, its highest proportion in more than a year, according to the State Street Risk Appetite Index.

AMP head of investment strategy Shane Oliver said “the news flow globally remains fairly messy”.

“There are ongoing concerns around the impact of rising interest rates, inflation has come down but is still high, there is still a high risk of recession, and worries about the economy are still impacting,” Dr Oliver said.

“In Australia we have seen a sharp slowing in profit growth, and there’s talk profits might fall in the current financial year.”

Dr Oliver said investor confidence was usually higher when markets were buoyant, and Australia’s stock market had been “churning around” this year.

“It turns around when we get more confidence that central banks stop raising interest rates and we start to see cuts, providing we haven’t fallen into a recession,” he said.

“Some time in the next six months we should see more confidence starting to creep in.”

HSBC’s Mr D’Souza said he expected more investors to switch from conservative to aggressive “when the dust settles, and when we get inflation under control locally and globally”.

“When business, investor and consumer confidence comes back, that’s when I think that dial will change,” he said.

Social media had been a significant source of investor information in the past decade, but is dropping again following heavy falls in cryptocurrencies – once a darling of younger generations – and a crackdown by regulator ASIC on financial advice via social media.

Mr D’Souza said social media platforms and commentary had “proved far too noisy”, and investors who were inundated by algorithms and opinions had since returned to traditional sources of information such as industry analyst reports, company websites and financial advisers.

Originally published as Investors stay conservative even as stock markets remain buoyant