Kiwi Investor Confidence Softens
• Investor confidence falls to +19%
• Own home considered to be the investment providing the best returns
• Small increase in share market investment
New Zealand investors are growing more cautious, according to the ASB Investor Confidence Report.
The quarterly report reveals net investor confidence (the difference between those who feel their return on investment will get better in the year ahead, and those who feel it will get worse) has fallen to +19% net positive in the three months to September (Q3) from +23 the previous quarter (Q2) and from the two-year high of +25 in the first quarter of the year (Q1).
Despite the dent in confidence, the level is still relatively high and remains well above the low of +3% seen at the start of 2016. (See chart A)
The survey was conducted before the election. ASB senior wealth economist Chris Tennent-Brown says despite election-related uncertainty, the level of confidence is still encouraging.
“Investor confidence has eased off the peak at the start of the year, but remains fairly upbeat and well above the levels a couple of years ago” Tennent-Brown says.
“There has been an amazing run for the sharemarket, and we could understand if the decline in confidence was because of some concern markets aren’t going to sustain their momentum. But that’s not the case - expectations of future returns remain similar to earlier surveys.”
The majority of respondents expecting the return from their investments over the next 12 months will be the same (43%) or better (28%) than in the past 12 months. Only 10% expect returns to be worse over the next 12 months.
Term deposits continue to lead as the bank product that provides the best returns, strengthening in position to 14% (from 12%), while KiwiSaver and savings accounts declined to 8% (from 9%) and 6% (from 7%) respectively. (See chart C)
“This is slightly disappointing, given the strong returns recorded over the past year from a number of KiwiSaver Schemes and managed funds. Growing caution in some quarters could be behind the increase in people using term deposits, with one in three using this investment option, despite the low interest rate environment,” Tennent-Brown says.
Among non-bank products, own homes (23%) followed by rental properties (20%) currently lead as the investments that provide the best returns.
This is somewhat at odds with the inertia seen in the housing market in recent months, Tennent-Brown says.
“But it does provide a signal that investors retain their long-term confidence in property-related investments, despite the slowdown we’ve observed in the market in the months around the general election.”
There has been a small increase in those using shares as an investment this quarter, rising to 19% from 15%. This comes with a significant increase in public shares being perceived as having the best returns, rising to 9% from 6%. (See chart B)
Ten years into KiwiSaver, many Kiwis still don’t seem to be completely up-to-speed with what is going on with financial markets and investments, Tennent-Brown says.
For example 58% of respondents have investments in KiwiSaver, but only 23% of respondents regard their understanding as high. And 18% of respondents don’t know what fund they are in.
“Part of the story is that it’s not easy. The documentation and language around investments can be complex. Related to this, the survey shows the majority of people don’t read the documents provided by their investment providers,” Tennent-Brown says.
“This could be why people see term deposits as providing the best return, because it is a simpler product. Yet term deposit rates have fallen steadily over recent years, and are now largely between 3-4 % for return, with a return of around 10% for many growth investments over the last year.”