The gloomy country

Published in the Herald Sun, May 2014 by Karina Barrymore

Australian investors are losing confidence as the global resources boom tapers off and their domestic investments fail to fill the gap, according to new research.

The latest global investment survey by asset manager Legg Mason has found Australian investors are worried that weak domestic growth and low interest rates are “derailing” their long-term plans and future income streams.

They are more gloomy than investors in other countries and also expect conditions to be worse for the next generation, the report finds.

“Australians, as an investor group, display a larger level of concern at the way the investment landscape is changing,’’ Legg Mason spokesman Matt Schiffman said. “Australian investors (are) worrying about low interest rates and high real estate prices as they assess their country’s long-term investment prospects.

“They still look to China for future investment opportunities ... but Australian investors also realise the investment-led boom of the past few years is over and they are waiting cautiously to see what comes next. Low domestic growth is their major worry as they assess risks to their investments.”

The survey also found a substantial shortfall between what investors expected to earn from investments and what they actually received. “While investors expected an average 9.2 per cent annual
return, the survey found they were currently receiving 6.2 per cent on average — a ‘reality gap’ of 3 per cent,’’ Mr Schiffman said.

And despite the ongoing love affair with property, these assets were one of the biggest underperforming investments compared with expectations, the survey found.

“Australian property investments yield them an average of 3 per cent per year, well below the expected 9.2 per cent,’’ he said.

The standard of advice might be part of the reason for the gap. Although Australian investors scored the quality of professional financial advice higher than investors in many other countries, it was still low.

Only 40 per cent said they were entirely satisfied with the level of service they received from their financial adviser.

US-based Legg Mason, with affiliated investors, has about $22 billion under management for Australian clients.

In the latest survey, the group polled about 4200 investors in 20 markets. The heightened concern about low domestic growth was fuelled by a heavy reliance on local share and property markets.

Mr Schiffman said fewer than 60 per cent of Australians have more than 1 per cent of their portfolio invested in international assets, compared with 80 per cent globally.

However, fund manager and Wealth Within analyst Dale Gillham said domestic investments usually offered stronger, more stable returns. Unlike those from other nations, Australian dividends also carried tax credits, while international shares were subject to withholding tax, Mr Gillham said.

“There are also enough places in Australia to invest your money without going overseas,’’ Mr Gillham said. “There are 500 shares for example on the All Ordinaries Index, when in fact you really only need 10 stocks for your portfolio to work.

“Investors also start to lose control to some degree when they invest overseas. If you’re buying directly into an ASX listed share you know there is a company regulator in Australia, a banking regulator, while offshore you don’t know the regulations and, of course, there are always the currency issues.”

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