What is the latest trend in savings and investments?

Financial Planning | admin | January 15, 2012 at 9:33 am

How are people responding to the current economic condition, a mix of sticky inflation, sluggish growth and global uncertainty? Are they saving more and investing less, or vice versa? In the first six months of 2011, the nominal savings growth declined to 9% compared with the same period in 2010.

Households are focusing only on two asset classes—gold and bank deposits. In terms of value, gold is up 51%, bank deposits 20%, and property 14% (down in volume).

As for other investments, even as the fixed income mutual fund flows turned positive during this period, the new insurance premium was down 15%, small savings fell 66% and equities faced outflows compared with the same period last year.

Households seem to be searching for yield and safety, which is a distinct shift from 2010. Overall, it seems the low real rates have hurt the appetite for financial assets, with savings down 2.9% (in the first half of 2011 compared with 2010), as opposed to physical assets, which were up 39%.

The persistent rise in yields should have created a stronger response for paper assets, but the preferences have been influenced by the low risk appetite.

According to the report, people's choices could shift once again in 2012 as rates peak and growth/inflation become more favourable for risk appetite. The global outcomes could, however, play a role in this decision-making process.