Canadian investors, advisors increasingly cautious

Persistent economic turmoil in Europe has Canadian investors and financial advisors growing increasingly trepidations about the investing horizon, despite high levels of optimism on the domestic front.

Canadian investor enthusiasm has decreased across almost all investment vehicles in the first half of 2012, according to the latest Financial Investor Sentiment Index from Manulife Financial.

Canucks continue to favor more conservative vehicles such as fixed income investments, investment properties, balanced funds and cash.

Measured against the insurance and investment company's December 2011 results, attitudes towards investing in mutual funds remain relatively steady and interest in TFSAs remains high, but interest in investing in RESPs, RRSPs and segregated funds all dropped significantly, the report reads.

"Recent economic challenges, including the persistent financial instability in Europe, help us understand why Canadians remain cautious about investing," Paul Rooney, president and CEO of Manulife Canada said in a statement. "As these global economic challenges dominate headlines without any significant signs of recovery, confidence in financial markets will continue to be uncertain."

Regional breakdown

Investors in British Columbia are more likely to indicate that it is a good or very good time to invest in their home (74 per cent) compared to provinces like Quebec (62 per cent) and nationally (70 per cent). In addition, 51 per cent of B.C. respondents indicate that it was a good or very good time to invest in cash -- a figure higher than the national result (44 per cent).

Also of interest, Quebeckers are less likely to agree that it's a good or very good time to invest in TFSA's with only 63 per cent agreeing it's a good time to invest, compared to 71 per cent of all Canadians respondents.

Stocks take a back seat with advisors

Canadian advisors are also shying away from equities, mirroring the mood of retail investors that more conservative investments are the way to go. Horizons Exchange Traded Funds Inc.'s quarterly investment advisor sentiment survey finds fewer Canadian advisors are bullish on stocks than they were three months ago. The majority of advisors are still bullish on stocks, but confidence is declining after a relatively difficult quarter in returns.

"Up until recently, Canadian advisors had a lot of confidence in stocks. After a quarter of difficult returns, that enthusiasm seems to be waning," says Howard Atkinson, CEO of Horizons ETFs. "Emerging market equities have historically been a little more volatile than developed nation stocks, so it would stand to reason that bearish sentiment on those stocks has increased more dramatically."

Cautious but optimistic

Despite high levels of trepidation, Canadian investors are optimistic about the future -- especially with relation to domestic opportunities. A recently released BMO Harris Private Banking study found three-quarters of its respondents (74 per cent) are rather upbeat about Canadian financial markets but more than 40 per cent have a pessimistic view about what the future holds for global financial markets.

"Canadians, not surprisingly, have a fairly optimistic tone to their comments … they're probably referencing the federal fiscal situation where we're pretty close to running a federal budget surplus," says Paul Taylor, chief investment officer, BMO Harris Private Banking in Toronto. "What's interesting is they extrapolate that to the Canadian financial markets. I think their view is that, plus the strength of commodity price positions, Canada is doing quite well."