Overall sentiment among investors in Australia has improved markedly since January. While short term caution still reigns, a majority is now anticipating 2012 will generate a positive return with equities likely to be higher on a six to twelve month horizon.

The improvement in sentiment has led to some cash being re-allocated back into the share market, though overall cash-on-the-sidelines levels remain high.

Many respondents to the Australian Investors Sentiment Survey for March, conducted by the Australian Investors' Association (AIA) and FNArena, indicated an intention to put more cash back into the share market.

At the same time, a sizeable group of respondents remains negative on the outlook due to high sovereign debt levels in Europe and elsewhere.

The overall rise in optimism was probably best described by Geoff from Canberra: "I believe the markets will go up over the next 6 months, and definitely in the next 12. There may be a slight slump or at least flat period before then. There will definitely be a blip when the next Greece (or Spain, Portugal, etc) makes the headlines again, but I think the real damage has already been built into market prices."

His view is supported by Chris Carey from Figtree, NSW: "The biggest economy in the world (the US) is starting to make progress. Still not enough to avoid market volatility but enough to be fairly sure markets will most likely mostly react on the upside"

Agreed, says Gordon Campbell from North Hobart, Tasmania, who advises: "Proceed with caution BUT some optimism".

The average investment portfolio in Australia now has circa 22% in cash, down from 25% in January, with 47% in equities (up from 44% in January), 18% in property and 13% in fixed interest.

Overall improved sentiment is reflected through a sharp fall in respondents with a negative ("bearish") view on the short term outlook for equities, while longer term, for the first time in the history of The Australian Investor Sentiment Survey, bulls have now grabbed the upper hand expressing optimism on the share market's outlook for the next 6-12 months.

AIA and FNArena have been conducting quarterly surveys starting January 2011.

Results at AIA were more positive than at FNArena, but the underlying trend is similar.

Amidst growing optimism, a large group of respondents continues to prefer safety over uncertainty.

"There are still many unsolved problems of debt in Greece, Ireland, Spain, Portugal, and the US which are just printing money. All these things are bandages but not real solutions", states Gunter Pfitzer from the Gold Coast, Queensland.

Lance James Arthy from Beaudesert, QLD concurs: "There has been a good early-year rise in markets but fragility is one bad-news day away. Still to be convinced the worst is behind us."

In line with all of the above, overall confidence among respondents has now risen near the high from March last year, see table below.

The Investor Sentiment Survey asked members at AIA and FNArena how they felt about the market and how they were invested. The Survey will be repeated in two months (May 2012). 335 respondents participated through the AIA and 331 through FNArena.

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