Investors ready for action
Published in the Gold Coast Bulletin, September 2009
A 'massive war chest' of more than $100 billion cash is about to be splashed around the investment markets as risk-shy mum and dad investors shrug off their fears about the global financial crisis and loosen the purse strings.
The first signs of the cash outflow has already begun and is expected to gain momentum during the months ahead.
According to independent research firm CoreData, a record $105 billion in cash has built up in deposits during the past two years as people shunned the share market and other risky assets.
However, the low returns from cash and steadily improving performance of other investments is proving a major lure for cashed up, said investors, CoreData analyst Andrew Inwood.
"The massive war chest in retail deposits stored during the global financial crisis will seek alternative assets which provide a higher yield and improved tax implications then holding a large cash asset.
"In excess of $100 billion retail deposits will move to other asset classes in the medium term, providing a fantastic opportunity for fund managers."
Unlike previous economic cycles when cash has been stored up, this time people are expected to invest it rather than spend it.
"In the last cash plunge - on the back of the mini-bear market in early 2003 – when the money flowed out again a reasonable proportion was spend on consumables like white goods, entertainment systems and new cars," said Mr Inwood.
Although some of the latest $100 billion stash would find its way to the shops it was much more likely that funds would find their way back in to the stock market, investment property, superannuation and managed funds.
"Our data is showing us two things - the first is that investor confidence has entered positive territory for the first time in almost two years and the second is that asset classes like shares and managed funds are starting to become popular again."
Australian Unity chief investment officer David Bryant also said investors were starting to diversify and rebuild their portfolios.
"You can't hide in cash for ever," Mr Bryant said.
"Everyone has been de-risking and cash has been the safe place to be but at these low rates you can't stay there.
"So is there a standout to invest in? I'd say property has the potential," said Mr Bryant.
"The credit crunch has stopped a lot of overdevelopment and investment property going ahead."
"I'd look at property trusts, which have been through recent revaluations."
"But take a look at the capital management side - how much they are paying for their debt, how long the debt is available before it expires and just how much debt they have," he said.
However, Wealth Within chief analyst Dale Gillham is not convinced now is the time to move away from cash.
"Given that interest rates are likely to rise before the end of the year and that I believe the share market is quite possibly going to be trading lower in November, then I would suggest people adopt a wait and see attitude," said Mr Gillham.
"Once the low in November is confirmed then they could start moving some of their money in to the market in a staged approach but I would not look to be fully in shares but have a balance between shares, cash and possibly property."
Shadforth Financial Group principal Kevin Bailey, however, thinks it won't hurt to hedge your bets rather than jump back in.
"It doesn't hurt to keep a little bit of our powder dry. Some of that cash may just stay on the sidelines longer than many people expect, particularly if interest ratesrise in the near future," said
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