Westpac Private Bank investor sentiment indicator insights into the investment intentions of wealthy Australians Quarter 2, 212
Welcome to the latest release of our Westpac Private Bank Investor Sentiment Indicator As part of our ongoing commitment to developing a deeper understanding of the attitudes, behaviours, needs and perspectives of high net worth (HNW) Australians, Westpac Private Bank is delighted to release the latest version of the quarterly Investor Sentiment Indicator. The Indicator is an aggregate measure of the investor sentiment of HNW Australians across the following areas: Expectations regarding the performance of the investment market. Perception of their current financial situation. Future investment intentions. We would like to share with you the latest key insights and hope you find them of interest, given that you are part of this HNW market. The latest data from the Quarter 2 212 survey reveals that HNW investor sentiment has moved back into negative territory, with the overall sentiment score dropping to -1.9 from +3.6 in Quarter 1, a result which is not surprising given the recent turmoil in global markets. While HNW investors were starting to see signs of a possible global economic recovery in Quarter 1, concerns about the Euro zone crisis and ongoing exposure to volatile markets have many believing that there are no quick fix solutions to the inevitable contagion impact of these geopolitical and economic challenges. Furthermore, many HNW investors continue to feel the lingering and constraining effects of post traumatic investment syndrome off the back of their experiences during the Global Financial Crisis. More broadly, the majority of HNW respondents in the study have a negative outlook on economic growth and the current business landscape in Australia. However, they continue to be more optimistic about the future than their Mass Affluent peers. In terms of asset classes, cash still reigns as king. Wealthy Australians continue to rebalance toward cash, albeit at a more measured pace than seen in previous quarters. The data also indicates that HNW investors have little faith in equities in the coming quarter. Property is the silver lining, relatively speaking, with more HNW investors likely to be happy than unhappy with their property investments. While these findings indicate a renewed level of cautiousness and pessimism, they also suggest the emergence of untapped potential around new wealth opportunities, which we outline at the end of this report. We recognise that traditional approaches are not enough when it comes to creating, building and protecting one s wealth. Our role as Private Bankers entails seeking out insight-led solutions which can help clients and their families achieve an enduring financial advantage in all market conditions. We look forward to continuing that journey with you, our valued clients. General Manager Private Wealth jwatts@westpac.com.au 2
Research background Westpac Private Bank and CoreData have partnered to undertake research to understand the sentiments, investment behaviours and service preferences of high net worth investors (HNWI) in Australia. The research looks beyond historical data and builds on a tool which maps HNWI intentions. This report does not attempt to summarise all of the data which has been collected, rather, it examines the predictive abilities that the data provides in particular, the way in which HNWI sentiment is an accurate predictor of investment markets in a post global financial crisis environment. CoreData has been researching Australia s HNWI since 22. The survey deployed by CoreData pays particular attention to asset class, investment type and product data to build a robust picture of the sentiments of Australia s HNWI and how they are likely to behave quarter on quarter. The CoreData research panel has an estimated 17, Australians that satisfy the requirements of HNWI namely investment portfolio size of $1,, or more outside both their superannuation and principal place of residence. Those with an annual household income of $25, or more are also classified as HNWIs. More than 22 respondents from this group were included in this latest HNWI survey. Mass Affluent respondents, by contrast, have between $5, and $75, in investable assets. The research provides a rolling sample (24-212) which enables one to compare future intention with past results. Interestingly, the research reveals that those who followed the predictions of wealthy Australians would have been better off than those who kept invested in the ASX2 index. The research was conducted between the 25 May 212 and 5 June 212. 3
-3 3 Investor sentiment HNW investor sentiment is down for Quarter 2 (April June) 212 HNW investor sentiment has fallen in the quarter ( 212) with the overall sentiment score returning to negative territory, dropping sharply to -1.9, compared to the result of +3.6 in the previous quarter (Q1 212). While HNWI were clearly beginning to see some signs of a global economic recovery in Q1, the continuing turmoil in European debt markets has led HNWI to believe that the issues of the global financial crisis have not been resolved and that markets may have not yet bottomed out. The volatility and under performance of the ASX throughout is also likely to have impacted investor confidence. HNWI versus Mass Affluent Sentiment: 212 Negative Neutral Positive -5-45 Mass affluent -23.5 HNWI -1.9 5 54-4 4-35 35-25 25-2 -15-1 -5 5 1 15 2 The results also reveal that HNWI are relatively more optimistic about the future than the Mass Affluent segment ( score of -23.5), which is in line with previous surveys. More specifically, CoreData research confirms that sentiment among the Mass Affluent typically lags HNWI by approximately 12 weeks. The Westpac Private Bank Investor Sentiment Indicator continues to be an insightful predicator of the direction of Australia s investment market. The graph below overlays the Indicator with the ASX2 Index performance since Q4 24. 4 3 ASX2 HNWI sentiment 7 65 Investor sentiment indicator 2 1-1 -2 6 55 5 45 4 35 ASX2-3 5 6 7 8 9 1 11 12 3 4
Economic and business outlook Despite the federal government s forecast budget surplus, most HNWI expect an economic slowdown HNWI are less positive than in Q1 212 in their expectations that the Australian economy will grow at a faster rate in the next quarter (a drop from 24.6% to 12.%). Close to three in four (7.9%) HNWI expect the economy to slow down either slightly or a lot in Q3. This result compares to 51.2% of HNWI respondents who felt this way in Q1 212. Comparing the next quarter to this past quarter, do you think the Australian economy will grow at a slower or faster rate? 8 6 HNWI Q1 12 HNWI 12 % 4 2 Slow down a lot Slow down slightly No change Speed up slightly Speed up a lot HNWI believe that the outlook for business remains bleak Almost two thirds of HNWI surveyed (63.3%) anticipate business conditions will worsen in the coming months. This percentage reverses a recent more positive trend, where less than half (48.9%) of HNWI anticipated deteriorating business conditions in Q1 212. Only a very small proportion of HNWI (.5%) anticipate much better business conditions next quarter. Comparing the next quarter to this past quarter, do you think business conditions in Australia will be better or worse? 6 HNWI Q1 12 HNWI 12 45 % 3 15 Much worse Somewhat worse Neither worse nor better Somewhat better HNWI households have mixed expectations for the coming year Much better Over two thirds of HNWI (67.3%) expect stable or improved financial positions for their households in the next year. This is down from last quarter s predictions (73.8%). Only a small percentage of HNWI anticipate that their household financial positions will be much better (5%) or much worse (4.1%) in the next 12 months. How do you think the financial position of your household will change over the next 12 months? 6 45 HNWI Q1 12 HNWI 12 % 3 15 Much worse Somewhat worse Neither worse or better Somewhat better Much better 5
Investor sentiment HNWI less confident this quarter As noted previously, HNWI are less confident in 212, with an index score of -1.9 compared to +3.6 in Q1 212. Similarly, Mass Affluent sentiment remains negative, with the 212 Indicator down (-23.5) compared to Q1 212 (-16.8). In fact, this quarter has signaled the lowest ever Mass Affluent sentiment level in the eight year history of the Investor Sentiment Indicator. HNWI Sentiment Indicator: HNWI versus Mass Affluent Investor Q1 212 versus 212 Sentiment Indicator: 212-1.9 3.6-1.9-23.5-5 5-5 5 HNWI Q1 212 HNWI 212 HNWI Mass affluent Higher investment satisfaction for HNWI than Mass Affluent HNWI are more likely than Mass Affluent investors to be happy with their current investments (41.1% versus 29.2%), possibly reflecting the fact that HNWI are making better investment decisions and thus enjoying more satisfactory returns. However, satisfaction is down for both in comparison to Q1 212 (48.5% versus 31.7%). HNWI satisfaction highest with residential property and fixed term deposits Both HNWI and Mass Affluent investors are pessimistic about the financial market outlook for Q3 212, with 61.2% of HNWI and 58.7% of Mass Affluent investors believing that markets, in general, will worsen. HNWI relative satisfaction is highest with residential property and fixed term deposits, and lowest with direct shares. 6
Investor intention The Investor Intention Indicator is a subset of the Investor Sentiment Indicator and measures investors future investment intentions. The overall future investment intention of HNWI has dropped slightly from -12.4 to -14.8. Like the Investor Sentiment Indicator, there is a considerable difference in intent between HNWI and Mass Affluent, with the latter considerably more negative about their future investment intentions (-29.7 versus -14.8). The difference between HNWI and Mass Affluent investors may be explained partly by more active investment strategies of HNWI who are generally more willing to rebalance their portfolios in a timely fashion. HNWI Intention Indicator: HNWI versus Mass Affluent Investor Intention Q1 212 versus 212 Indicator: 212-12.4-14.8-14.8-29.7-5 5-5 5 HNWI Q1 212 HNWI 212 HNWI Mass affluent Other research highlights Investment activity to remain subdued Just over one in five (22.4%) HNWI are likely to make new investments in the next quarter, while only 29.2% plan to invest further in an existing investment. Almost three quarters (72.1%) of HNWI also anticipate that they will stay the course with their current investments. Cash expected to maintain status quo The most popular asset for HNWI to rebalance towards is cash, with 3.7% looking to do so. This is slightly up on Q1 212 (28.2%). Despite this, more HNWI believe that fixed term deposit rates will worsen over the next three months (52.7% for 212 versus 29.1% for Q1 212). 7
HNWI have lost confidence in equities this quarter The Investor Equities Sentiment Indicator measures investor sentiment towards equities. As with investor sentiment, HNWI equities sentiment dropped sharply, falling from +5.3 points in Q1 to -23.8 in. HNWI are only slightly more positive than the Mass Affluent respondents, whose sentiment regarding equities is still negative (-25.9). Compared to Q1 212, there are now more HNWI and Mass Affluent investors believing that the Australian share market will underperform residential property (41.5% and 44.% respectively). More specifically, HNW respondents were most negative about international equities, with 66.2% believing that they will perform poorly in the next quarter. Over half (54%) also feel that Australian share performance will be somewhat worse or much worse. HNWI Equities Sentiment Indicator: HNWI versus Mass Affluent Investor Equities Q1 212 versus 212 Sentiment Indicator: 212 5.3-23.8-23.8-25.9-5 5-5 5 HNWI Q1 212 HNWI 212 HNWI Mass affluent HNWI are slightly more negative about the outlook for property this quarter The Investor Property Sentiment Indicator measures investor sentiment towards both direct and indirect property investment. As per the other indicators there was a fall in HNWI property sentiment compared to Q1 212 (-11.1 to -14.6). Across the four indices, it is with the Property Sentiment that HNWI and the Mass Affluent are most on a par with each other. In essence, both HNWI and the Mass Affluent recorded negative property sentiments, with the Mass Affluent slightly more negative than their HNWI counterparts (-14.7 versus -14.6). HNWI Property Sentiment Indicator: HNWI versus Mass Affluent Investor Property Q1 212 versus 212 Sentiment Indicator: 212-11.1-14.6-14.7-14.6-5 5-5 5 HNWI Q1 212 HNWI 212 HNWI Mass affluent 8
Conclusion The research reveals that, despite the uptick in sentiment in Q1 212, HNWI sentiment has since fallen back to negative territory. HNWI are still suffering the hallmarks of post traumatic investment syndrome in the aftermath of the global financial crisis and ongoing volatility of capital markets. They acknowledge that no matter how skilled they are at investing, the markets are beyond their control, causing them to continue to retreat to safe haven assets like fixed term and cash deposits. It is clear that traditional investment approaches are no longer enough when it comes to creating, building and protecting wealth. HNW Australians are re-evaluating their approach to managing their wealth, seeking out alternative yield enhancement opportunities and wealth protection strategies. There is also a considerable difference in sentiment between HNWI and the Mass Affluent segment, with the latter more negative about their future investment intentions. Behaviourally, HNWI also adopt more active investment strategies than their Mass Affluent counterparts. Emerging investment opportunities The research highlights that HNWI remain concerned about the global macro-economic backdrop and Westpac Private Bank s day-to-day interactions with our clients also reflects this. Many of our HNW clients seek to balance capital protection in order to safely manage the risks in the market, yet also wish to be selectively opportunistic. To this end, Westpac Private Bank is well placed to offer investment solutions that have undergone rigorous due diligence. The desire for relative safety is reflected in the growing focus on domestic yield alternatives in light of limited medium-term corporate earnings growth visibility. Solutions that clients continue to seek from Westpac Private Bank include a variety of yield enhancement solutions across various asset classes including, but not limited to: Corporate bonds: typically from sound issuers with sufficient premium to term deposit rates, good debt serviceability, shorter terms and some resilience to the current economic backdrop. Westpac Private Bank has sourced corporate bonds from the institutional market that meet clients investment preferences for corporates with an attractive yield, up to a three-year maturity and strong underlying economic resilience. Real estate opportunities: highly selective yield-based opportunities within specific segments of the real estate sector, with defensive characteristics and quality tenants. Equity yield solutions: solutions that take advantage of volatile equity markets to generate risk-considered income. Evolving offshore opportunities To supplement a finite number of avenues in domestic investing, more discussions are taking place with our clients about offshore opportunities. Despite the pessimism of HNWI towards international markets, we are witnessing rapidly evolving investment opportunities in restructuring and distressed situations across the world, particularly in Europe. We anticipate that restructuring opportunities will increase across private and public companies particularly where some element of leveraged buyout is now exposing balances sheets that are overly leveraged to the credit/economic contraction. Against this global environment, having access to a spectrum of wealth capabilities and specialists to support and implement the investment themes and manage risk is essential. Our Private Bankers, Investment Specialists and Strategic Advisers are on hand to help you create an enduring financial advantage, irrespective of market conditions. 9
Finally Westpac Private Bank was delighted to be recognised at the recent 212 Australian Private Banking Council (APBC) Awards. The APBC Awards are designed to recognise outstanding institutions and individuals within private banking, private wealth and private client services. These awards include the results of APBC client surveys as part of the assessment and scoring process. Westpac Private Bank won the coveted Outstanding Institution ($1m $3m) Award. In addition, the quality of our team was also acknowledged as team members took out four of the individual awards, namely: Outstanding Analyst, Outstanding Associate, Outstanding New Wealth/Investment Adviser and Outstanding New Relationship Manager. 1
Things you should know The information in this update is current at July 212. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. Westpac Private Bank s Financial Services Guide can be obtained by contacting your private banker. This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. Information in this publication that has been provided by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. It has not been independently verified and Westpac Banking Corporation ABN 33 7 457 141, AFSL No. 233714 ( Westpac ) is not in any way responsible for such information. It should not be considered a comprehensive statement on any matter nor relied upon as such. While such material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any projections in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The results ultimately achieved may differ materially from the projections. Past performance is not a reliable indicator of future performance. 11
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