Inflation and uncertainty subdues appetite for online investing

A combination of interest rate rises, market volatility and the threat of higher inflation has served to reverse the surge in online investing generated by the COVID-19 lockdowns.

That is the bottom line of Investment Trend’s 2022 First Half Australia Online Investing Report released today which reveals a significant fall-off in online investing down from 1.52 million unique individuals for the year ended November 2021 to 1.47 million unique individuals to the end of June, this year.

According to Investment Trends head of Research, Irene Guiamatsia, this reflects the combination of interest rate rises, the market downturn, and inflation.

She said the research highlights that two key engines of growth softened during the period: Inflows of first timers continue to shrink towards pre-pandemic levels while surging dormancy rates persist.

Guiamatsia said that investors had self-identified their participation in online investors as having been generated by their believe they had ‘reached a desired level of savings’ but this had changed.

“The ongoing cost-of-living pressures on households would no doubt contribute to delaying the assessment of readiness,” she said. “At the same time, the vertiginous rise of interest rates has reinstated cash as an appealing instrument for yield generation.”

Meanwhile, dormancy rates among those already investing have continued to climb. In this last reporting period, some 250,000 investors have halted their trading activity.

“It is common to see market downturns induce a paralysis of sorts, as many opt for a wait-and-see approach in turbulent times,” said Guiamatsia.

“Indeed, our Monthly Investor Intentions Index indicates investors’ average return expectations for domestic equities dropped below the psychological barrier of zero in June 2022 (-0.5%, down from 3.4% in November 21), the first negative measure recorded since the start of the pandemic.”

On a positive note, the bulk of dormant investors surveyed express a strong interest in re-engaging in a not-so-distant future. The ability for online platforms to provide relevant educational support to shore up confidence will be a key determinant to successfully maintain engagement.

“There is little evidence this genie is heading back in the bottle. The developments of the last two years have, to a degree unprecedented, enabled more younger investors and more female investors to access equity markets. This creates long-term opportunities all round – for self-directed platforms, advisers, and any solution in between,” Guiamatsia said.