By Chris Shaw

The latest ING Investor Dashboard Sentiment survey shows Australian investor sentiment fell sharply in the June quarter, a reflection of investors looking for safe haven assets to counter poor investment performance in the period.

Martin Donnelly, head of distribution and deputy CEO of ING Investment Management, notes the survey results show Australia has fallen to second last of 12 countries in the Asia Pacific region on a sentiment basis, well down from the equal second position recorded in March.

The survey results showed expectations for poor returns weighed heavily on investors, as according to Donnelly only 46% of Australian investors expect higher returns over the coming quarter. This compares with 75% of investors expecting positive performance in the March survey.

As Donnelly notes, this outlook is a reflection of immediate past experience, as only 35% of investors recorded positive returns for the June quarter against 72% of investors recording a gain in the March quarter.

Higher interest rates are also weighing on sentiment in Australia in Donnelly's view, the survey showing 82% of investors expect domestic interest rates will go higher this year and 70% seeing any further hikes as having a negative impact on the economy.

Australian investors also remain concerned about ongoing issues in global markets, as according to the survey 88% of investors don't expect a return to pre-GFC levels for two or three years. But Donnelly suggests there is a risk of being too cautious, as ING sees return upside from Australian companies leveraged to an expected recovery in the US economy.

These expectations are centred on a number of encouraging factors, including a recovery in US productivity, improving corporate profits, growing industrial production and an expansion in US manufacturing. ING notes consumption is also strong, while re-stocking is starting to occur given US interest rates remain low.

Europe doesn't appear to be a great concern, the ING survey showing 64% of Australian investors believe the European debt crisis will have little or no impact on their investment strategy. At the same time, 57% of Australian investors expect the issues in Europe will impact on global economic growth longer-term.

Australian investors remain optimistic on the outlook for the Chinese economy, Donnelly suggesting this is likely a reflection of the fact Australia is one of the economies that would be most impacted by any slowdown in Chinese growth.

The volatility in financial markets has seen investors flock to cash deposits, gold and bonds, Donnelly noting bonds are now at their most popular level since the GFC. The survey showed 35% of investors expect further share price falls, while only 33% of investors are currently considering investing in high growth stocks. This last measure is down from 54% in the March quarter.

Donnelly notes ING's view remains positive, as the group sees fundamental value in the Australian equity market given a one-year forward earnings multiple of around 11 times at present. This compares to a long-run average of around 14 times. The key to good investment returns in 2010 will be stock selection in Donnelly's view.

The ING survey measures investor sentiment across 12 countries in the Asia Pacific region with a focus on changes in market sentiment, investment attitude investment performance and the financial situation of more than 3,700 investors. The Australian portion of the survey included 307 investors with liquid assets of more than US$100,000.

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