Investor optimism about the outlook and prospects for Australian equities is somewhat tempered in the short term, as macroeconomic headwinds such as the fiscal cliff in the US remain in the news. But general optimism rules for what is likely going to happen in equity markets next year.

There's probably no better signal to illustrate this (cautious) optimism than the fact cash on the sidelines seems to be gradually moving back into equities again.

The Results of the November Australian Investor Sentiment Survey from the Australian Investors' Association and FNArena show the average cash in investment portfolios has sunk to the lowest level for the year. At 21%, the average cash on the sidelines is now back at levels last seen in July 2011, though still high by historical standards.

According to past Survey results, average cash in investment portfolios peaked at 26% in September last year.

"I think the long term future of the equities market will be better than cash investments. The outlook is very uncertain however over a short to medium timeframe,"said an unnamed survey respondent.

With the US fiscal cliff on the mind of many investors, Bullish current sentiment has declined from the past read. However, positive sentiment levels still remain significantly higher than the attitudes on display just six months ago.

Bruce McBryde from Brisbane summed up the prevailing attitude quite well, offered "I anticipate a reasonable reporting season here and in the US and a pull back from the fiscal cliff."

"Waiting for more opportunity to purchase after the US debates the 'fiscal cliff' for a few more weeks," said an anonymous respondent.

While the equities outlook on a 6-12 month horizon remains positive, with many hoping the trend will continue; there is an increasing amount of concern being noted about the medium to longer horizon, with investors appearing to be (a little) less confident than they were in September.

One surveyed investor spelled out exactly why he is turning bearish longer term, noting "I've turned bearish (from neutral) since the last survey. Equities are going to stay stagnant until some of the issues e.g. fiscal cliff are resolved. Resolution is unlikely to occur for a few months and probably with a new congress, not the current one."

"Bearish short term; more bullish long term.