The Bank of America (BofA) has signalled tough times ahead with at least one credit downgrade in late November or early December.

A BofA analyst notes: “We expect a moderate slowdown in the beginning of next year, as two small policy shocks-another debt downgrade and fiscal tightening-hit the economy. The ‘not-so-super’ Deficit Commission is very unlikely to come up with a credible deficit-reduction plan.”

The US has had its fair share of financial woes with Standard and Poor’s historic downgrade of their credit rating from the golden triple-A rating to AA-plus rating in August. This coupled with political debates over the debt ceiling fuelled consumer fears of America defaulting on its financial obligations.

The US debt problems in parallel with Europe’s continuing economic instability had a dramatic impact on Australian investors with recent CoreData research revealing a slide in investor sentiment to the lowest levels since Q1, 2009.

The uncertainty has seen Australians quickly become a nation of savers, with $1.1 trillion currently stored in deposits, and that amount likely to grow steadily. Almost one in three investors (30.9%) plan to rebalance to cash in Q4, while only one in five plan to rebalance to shares (18.6%).

Comparing the next quarter to this past quarter, are you more or less likely to rebalance your investments towards the following asset classes?

So what does the threat of further downgrades mean for Australia?

If the reaction of Australia investors is anything close to the one we experienced in August, when the stock market plummeted before rallying in an incredible U-turn indicative of the huge volatility in the markets this year, we could be in for some rocky times.

*CoreData’s Investor Sentiment Survey Report is available for purchase. Please contact CoreData on 02 9376 9600.