Investor Confidence Dives In Wake Of September 11 Attacks, But Investors Hold Tight
ASB BANK’s latest Investor Confidence Survey reveals the largest fall in investor confidence since the survey began four years ago. During the month of September investor confidence dropped 18 percentage points, from a net* of 17% of respondents in August who expected better returns from investments over the next year, to a net of 1% of respondents expecting worse returns. For the quarter as a whole this meant that investor confidence fell from a net 12% positive to a net 10% positive.
Chief Manager, ASB BANK Investments, Roger Perry observed that sudden falls in investor confidence signal investors feeling less wealthy, and can affect their consumption behaviour and have widespread effects on the economy.
“This is the reason why we have seen Governments world-wide, including the Reserve Bank of New Zealand, move so quickly to reduce interest rates in the wake of the September 11 attacks. On strict economic criteria the interest rate reductions may not have been required, but to underpin confidence they are important,” he says.
While investor confidence dropped sharply during the month, it has not yet reached the levels seen after the Russian Debt default in 1998, or even the steady slide in confidence after the “tech wreck” last year. In October 1998 confidence reached a net 21% of respondents expecting worse returns in the year ahead, while confidence briefly reached a net 9% expecting worse returns in October 2000.
“So far the survey indicates that the drop in confidence has not translated into any major changes in investor behaviour,” he says.
Most investors remain confident that managed investments will provide the best returns in the year ahead at 21%, similar to the previous quarter (20%). The proportion favouring residential rental property was unchanged at 13%, while those favouring bank term deposits rose slightly from 12% to 13%.
“The biggest change was recorded in those favouring shares in public companies, which fell from 13% to 10%. This may well have been affected by the fallout from the Air New Zealand episode,” he says.
The survey results for confidence for investment types showed no major variances when the month of September was looked at separately.
Mr Perry commented that while ASB BANK Investments received an influx of enquires following the September 11 attacks, a remarkably small number of investors decided to close their investments as a result.
“Investors in volatile sharemarkets must only be there if they have a long term outlook, and must be prepared to weather occasional shocks. Investors clearly took some comfort from the prompt Government response to the terrorist attacks, and will also have been encouraged that world sharemarkets have recovered in early October.
“While investors are likely to be watchful over the months ahead, I would not be surprised if we saw a modest rebound in investor confidence from September levels in the next survey,” he says.
The survey is based on a nationwide survey of adults aged 18 years and over, with a quarterly sample size of between 750-1000 people.
*Net Response is the difference between those who expect better returns and worse returns from their investments in the upcoming year.