ASX investors have been inundated with headlines about rising inflation over the past quarter.
And rising inflation, historically, leads to central banks increasing interest rates to keep a lid on the pace of any price rises.
Increasing interest rates, in turn, tend to broadly lead to lower share market performance. There are a number of reasons behind that phenomenon.
Among them, with higher interest rates alternative, safer investments – like cash deposits or government bonds – become relatively more attractive to owning shares.
Rising interest rates also increase the present-day cost of money. That can be particularly onerous for growth shares whose revenue streams might not come online for several years into the future.
So, with all the media attention on inflation and rising rates, you might think these would top the list of ASX investor concerns.
But the latest quarterly global Retail Investor Beat report from global multi-asset investment platform eToro shows Australian investors have a much larger concern.
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What's keeping ASX investors awake at night?
According to the global survey by eToro – which queried 6,000 retail investors across 12 countries, including 500 in Australia – the biggest external risk that might drag on the ASX in 2022 is the state of the Aussie economy.
Some 47% of Australian respondents listed a shaky economic outlook Down Under as their prime concern. That was followed by 44% of Aussies who said the global economy posed the biggest risk to the ASX and international markets.
Inflation concerns came in well below that at 25%.
And only 16% of Aussie investors cited rising interest rates as the biggest risk to share markets.
Commenting on the results, eToro's global markets strategist Ben Laidler said:
There are a number of headwinds facing investors at the moment in the shape of rising inflation, interest rate hikes and a faltering economic recovery.
Typically, you would expect most investors to take action to counter these headwinds, but our data shows the opposite is true at this moment in time. It seems as though the vast majority of retail investors are taking a 'wait and see' approach in the hope that inflation is temporary and the recovery gets back on track.
With home prices growing strongly in Australia and many investors having increased their cash and decreased their debts during the year of COVID, Laidler added:
Many households have reduced their debt during the pandemic, using spare cash to pay down credit cards, loans and mortgages, which makes them less susceptible to rises in interest rates. Add to this higher house and equity prices, alongside rising wages, and we see that many investors are resilient to the risks ahead.
What's the best place to invest in the ASX over the next 3 months?
Australian investors were also asked which sectors look best to them over the coming quarter. And the ASX and global healthcare sector came out on top.
According to eToro, 37% of Aussies think stocks in the healthcare sector will provide the best investment buying opportunities over the next 3 months. That was followed by technology shares at 35% and financial services shares at 24%.
Some other interesting nuggets revealed in the survey
The Retail Investor Beat report also broke down ASX investors by age group. This revealed that:
- 21% of Aussie investors are 18-34
- 21% of Aussie investors are 45-54
- 39% of Aussie investors are 55+
And when asked about their outlook for US share markets – which tend to greatly influence the performance of the ASX – for 2022, 22% of Aussies (of all ages) believed US markets will be range-bound in the next 12 months.
The optimists weren't too far behind though, with 20% of Australian investors saying they think US markets will rally next year.
