- Retail investors in Australia and New Zealand have cited rising interest rates as their main concern as they seek to increase investment.
- Auditors have received strong endorsement for their role in protecting investor interests.
- Investors are still being advised to pursue a diverse portfolio of assets, despite the lure of growth stocks in the tech sector.
By Cameron Cooper
A new survey suggests Australian and New Zealand retail investors are starting to say goodbye to the pandemic blues, while the findings have also reaffirmed that auditors remain the most trusted intermediary when it comes to protecting investor interests.
The annual Chartered Accountants Australia and New Zealand Investor Confidence Survey indicates that respondents are intending to increase investment during the next 12 months. As the impact of COVID-19 and global political unrest begins to decrease, concerns over rising interest rates now represent their major fear.
Conducted in June 2023, the survey was completed by more than 1000 Australian and 500 New Zealand retail investors who mostly hold more than $10,000 on the share market, in addition to other investments such as managed funds, property and superannuation portfolios.
The value of audit
CA ANZ reporting and assurance leader Amir Ghandar FCA says the results underline the value to investors of transparent and reliable audited information. Confidence in audited financial reports has remained solidly around 90% in Australia and 88% in New Zealand throughout the four years that the CA ANZ survey has been running, with auditors beating regulators and financial analysts as the most trusted intermediaries for investors.
“This pleasing finding has remained very stable and, while this is not the time for auditors to rest on their laurels, it is testament to the painstaking work they do every year,” Ghandar says.
He adds that the findings of trust are especially significant, given recent revelations, media commentary and government inquiries around the operations of the big four accounting firms.
Pictured: Amir Ghandar FCA, CA ANZ
“This survey was run right in the middle of when there was very significant scrutiny around the larger audit firms, in particular,” Ghandar says. “What this shows is just how important it is to continue to meet public expectations and address any questions that are being raised.”
Any dip this year in the survey numbers for the auditing role would have been a concern, according to Ghandar. “You can see that this hasn’t shaken the confidence that investors have in audited information but it’s a wake-up call to make sure auditors are living up to our charge at all times.”
Steve Hayes CA, managing partner – audit and international contact partner at RSM in New Zealand, agrees that the survey findings are “great for the profession”.
“A lot of our clients are very appreciative of the insights they’re getting by way of the audit process, which has been reflected in the investor confidence survey,” he says.
“A lot of our clients are very appreciative of the insights they’re getting by way of the audit process, which has been reflected in the investor confidence survey.”
Spotlight shifts to interest rates
After the 2022 survey revealed that investor confidence in Australia had plunged due to fears around a continuing pandemic and ongoing geopolitical unrest, including supply-chain obstacles stemming from the Russia–Ukraine war, the 2023 survey reveals a ray of light that is shining on local and overseas markets.
In particular, a larger proportion of respondents have this year expressed confidence in offshore markets.
Ghandar says Australian investors are clearly focused now on one major risk – higher interest rates. “That’s a lot more familiar and contained for investors,” he says. “They’re able to deal with that and their confidence is coming back.”
Key results in the Australian survey include:
- 50% of respondents are planning to increase the scale of their investment in the coming year, with the two main reasons for the rise being improved financial circumstances and confidence in the ASX
- 85% say they have confidence in investing in local publicly listed companies and 73% have confidence in overseas capital markets
- 23% indicate that rising interest rates are their main concern, up 13% on last year, while fears around global political unrest and the pandemic have both fallen by 6%.
Rachel Waterhouse, chief executive officer of the Australian Shareholders’ Association, says while there is “cautious optimism” among members about the investment outlook, investors do have their eyes on interest rates.
“There’s often a lag period between interest rates increasing and the full effects for markets,” she says, “so that’s the part to watch.”
Other factors on the agenda include the rising cost of living, the war in Ukraine and supply-chain bottlenecks that continue to hurt some companies and sectors. In such an environment, Waterhouse says investors are seeing value in non-discretionary retailers such as Woolworths and Coles.
“They’re a staple and people must continue to buy their products. They’re often known as defensive companies, those that do well in both up-times and down-times,” Waterhouse says. “If their costs rise because of inflation and other reasons, they have the ability to pass it on to the consumer. We all need to eat.”
She expects companies that have the potential to benefit from artificial intelligence (AI) advances and microchip technology to also be in demand. She is worried, though, by some investors who have expressed a desire to overhaul their portfolio and over-commit to AI-related stocks because they think that is where the money will be made.
With doubts remaining over the long-term prospects for some tech startups, she advises mum-and-dad investors to stick to the tried-and-true model of having a diversified portfolio of assets and to invest according to their risk profile as part of a long-term financial plan. “In these times of uncertainty, such an approach is even more important.”
Understanding the outlook
Jennifer Travers CA, partner, audit and assurance at KPMG Australia, agrees that rising interest rates are on investors’ minds. She adds that in early August, KPMG chief economist Dr Brendan Rynne predicted at least one more rate rise in the following two-to-three months. Services inflation, in particular, is expected to remain high with wage pressure contributing to this.
“Alongside a predicted extended shallow recession in 2024, we’d expect investors might be worried about interest rates being pushed too high,” Travers says.
Although the survey points to increasing investor confidence, Travers expects it to be confined to “pockets” of the market because of cost-of-living pressures, high inflation and the impact of interest rates. She says the cohort likely to be most stressed are those people with fixed-rate mortgages who are coming off their low fixed rate and will need to refinance with higher rates. However, even those on variable mortgage rates, and retirees facing higher living costs, could become more reluctant to invest.
Recession the big unknown in New Zealand
In New Zealand, investors are coming back into markets seeking opportunities, with higher interest rates also being their main fear.
There have been modest increases in confidence in domestic capital markets and domestic publicly listed companies, which is welcome news given the multi-point plunges shown in last year’s survey.
Key results in the New Zealand survey include:
- 56% of respondents want to lift the scale of their investment over the coming year, with improved personal circumstances and some confidence in the national economy being the main reason
- Confidence in capital markets outside New Zealand has jumped by 8%
- Investors see rising interest rates as the biggest risk to the domestic economy, with 17% saying it is their main concern, up 10% on last year
- Concern about global political unrest and ongoing pandemics has fallen to 16% and 11% respectively.
Although the New Zealand economy emerged strongly from the pandemic, it has since fallen into recession in June after the nation’s central bank aggressively raised interest rates to curb inflation.
Despite many positives, Hayes says New Zealand’s economy tends not to be as robust as that of Australia, which can turn to its resources sector for momentum. “When times get tough in Australia, you dig up another part of Western Australia,” he quips.
Hayes notes that agriculture and tourism – two of New Zealand’s biggest sectors, along with technology exports – are still experiencing some fallout from global volatility. Nations such as China have cut demand for New Zealand’s export goods in response to COVID-19, while tourism from the massive China market is still well down on pre-pandemic levels.
Such turbulence aside, Hayes acknowledges that investors are becoming more active again and he is confident that diligent auditing will help embolden them. He points out that audit reports, particularly for publicly listed companies, are no longer just “one-pagers”.
“The audit reports have a very good description of what’s going on with the business, with the key audit matters [KAM] section providing a great signpost to contextual, entity-specific information,” he says. “The KAMs provide more information for investors to enable them to make an informed decision.”
Hayes says there is also increasing scepticism from investors in relation to corporate information and marketing announcements, which in turn makes the information in audit reports and the confidence provided by the auditor’s report all the more valuable.
Welcoming the survey findings that show that respondents continue to trust the auditing function, Travers says KPMG is committed to adding even more value to investors through its investment in AI and other auditing technology. This should allow more in-depth analysis of client data and has the potential to improve audit quality.
“Whether it’s data analytics or AI, the value is providing our clients a whole new level of insight on their data, relative to traditional sampling methods,” Travers says.
The other change that promises to make auditors even more indispensable to investors is the Australian Treasury’s recent public consultation paper outlining the proposed implementation of mandatory climate-related financial disclosures from July 2024. The paper also proposed phasing in assurance requirements, starting with limited assurance and moving to reasonable assurance.
“The new climate related disclosures should be investment grade, so that stakeholders have credible information to shape their investment decisions,” Travers says.
As investors and finance professionals contemplate the year ahead, Ghandar says the survey results should give auditors a sense of confidence that they are playing an important role in helping their clients.
“Auditors are out there working really hard and I know sometimes they can feel disenfranchised,” he says. “If there was a negative message from the survey results, we’d have to say, ‘Pull your socks up’. But the positive findings this year are again a great endorsement for auditors that they are making a difference.”
Beware the FOMO factor
Given the recent volatility of financial markets, Rachel Waterhouse, CEO of the Australian Shareholders’ Association, calls on investors to tread warily as they move to ramp up their assets. She says the FOMO factor – fear of missing out – could prompt them to jump at the latest stock market darling without due consideration. “That doesn’t usually end well,” she says.
One tip from the Australian Shareholders’ Association to investors is to write down reasons for investing in a particular share (it could be a view that a mining stock is on the rise because of international market conditions) and set a price at which they might sell that stock. “Such a strategy can help keep decisions rational,” Waterhouse says.
Read the full survey results
Visit the CA ANZ website to read the full 2023 CA ANZ Investor Confidence Survey findingsFind out more