Despite the fact that the Australian stock market is up 10.3 percent year to date–as measured by the SPDR S&P/ASX 200 Fund (ASX: STW)–the average Australian investor remains scarred by the Great Recession and the subsequent market turmoil resulting from the European sovereign-debt crisis. Europe’s debt crisis coupled with a slowdown in China took the Aussie market down 10.8 percent in 2011.

While investors in yield-starved, developed-world countries such as the US have lately been enticed by Australian equities’ relatively high dividends, Australian investors themselves have a neutral-to-bearish outlook on their market. Indeed, the Australian Securities Exchange (ASX) recently ascribed a nearly four percent drop in annual net income to a decline in transactions, with investor activity for the current calendar year markedly lower than the prior year. In fact, the ASX reported that the total value of its average daily trading volume in July dropped to AUD3.5 billion, the lowest such level since mid-2005.

The Australian Investors’ Association (AIA) conducts a survey of investor sentiment every two months that reveals the retail investor’s attitude toward the stock market, as well as other asset classes, such as real estate, fixed income and cash. Bearishness rose from 15 percent in January 2011 to a near-term peak of 56 percent in September 2011 at the height of Europe’s debt crisis. It then dropped to 22 percent in March of this year before hitting a peak of 57 percent in May during the swoon in the global markets.

Results from the latest survey (the archive of surveys can be found by clicking here) show a moderate slackening in bearishness to 37 percent, with 39 percent of respondents expecting the market to be higher in six months’ time. That skepticism toward equities is further reflected in the average allocations reported by investors. Australian investors currently allocate 44 percent of their assets to equities, 22 percent to cash, 19 percent to real estate, and 15 percent to bonds. Cash levels dropped 2 percentage points from May, with equity allocations rising by an equivalent amount.

From the beginning of 2011 through the end of July, equity allocations have ranged from a high of 53 percent in March 2011 to a low of 40 percent in May 2011. And cash allocations have ranged from a low of 17 percent in May 2011 to a high of 26 percent in September 2011.

Even the so-called “smart money,” which gets paid to run money for others, can fall prey to paralysis when it comes to their own personal assets, as evidenced by this interview with one veteran wealth manager that was published in The Australian a few weeks ago.

Although this gun-shy attitude seems reasonable given the uncertainty in the global markets in general, and the sweeping regulatory shifts that could impair Australia’s mining industry in particular, such anxiety can actually propel a market higher. In fact, investor sentiment is typically analyzed from a contrarian standpoint. In other words, sentiment readings tend to be a lagging market indicator, with analysts paying special attention to readings posted at bullish and bearish extremes.

That concept may sound confusing at first, but it becomes easier to grasp when considering how the flow of money can move the market. As a market moves higher, it compels formerly anxious investors off the sidelines. But then once the last fearful investor has finally thrown in with the bulls, there’s no new money left to push stocks higher, and the weary bull market finally falls. The same thing happens in reverse at the trough of a bear market. Of course, it’s important to note that market sentiment is a short-term indicator that should be just one component of an investor’s analytical toolbox.

But overall, the relative caution on the part of the average Australian investor could actually prove to be a bullish omen for the Aussie market over the next several months.

The Roundup

See the latest issue of Australian Edge (to be published later today) for extensive coverage of Portfolio Holdings.

The following listing specifies the dates (confirmed, tentative or estimated) for each AE Portfolio Holding’s next earnings announcement. Where companies have reported recently, we’ve included a link to our discussion and analysis of results.

Conservative Holdings

• AGL Energy Ltd (ASX: AGK, OTC: AGLNF, ADR: AGLNY)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• APA Group (ASX: APA, OTC: APAJF)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF)–Jul. 26, 2012 (confirmed, CY/FY 2012 1H, end Jun. 30, 2012)
• Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY)–May 2 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 5, 2012 (estimate, FY 2012, end Sept. 30, 2012)
• Cardno Ltd (ASX: CDD, OTC: COLDF)–Aug. 14, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• CSL Ltd (ASX: CSL, OTC: CMXHF, ADR: CMXHY)–Aug. 21, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Envestra Ltd (ASX: ENV, OTC: EVSRF)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• M2 Telecommunications Group Ltd (ASX: MTU, OTC: MTCZF)–Aug. 27, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY)–Aug. 10 Down Under Digest
• Transurban Group (ASX: TCL, OTC: TRAUF)–Aug. 10 Down Under Digest

Aggressive Holdings

• BHP Billiton Ltd (ASX: BHP, NYSE: BHP)–Aug. 22, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• GrainCorp Ltd (ASX: GNC, OTC: GRCLF)–May 23 Down Under Digest (FY 2012 first half, ended Mar. 30, 2012), Nov. 14, 2012 (estimated, FY 2012, end Sept. 30, 2012)
• Grange Resources Ltd (ASX: GRR, OTC: GRLLF)–Aug. 30, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Mineral Resources Ltd (ASX: MIN, OTC: MALRF)–Aug. 20, 2012 (estimate, FY 2012, end Jun. 30, 2012)
• Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–Aug. 13, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• New Hope Corp Ltd (ASX: NHC, OTC: NHPEF)–Sept. 20, 2012 (estimate, FY 2012, end Jul. 31, 2012)
• Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY)–Jul. 24, 2012 (confirmed, FY 2012 1H, end Jun. 30, 2012)
• Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY)–Aug. 23, 2012 (confirmed, FY 2012, end Jun. 30, 2012)
• Rio Tinto Ltd (ASX: RIO, NYSE: RIO)–Aug. 10 Down Under Digest
• WorleyParsons Ltd (ASX: WOR, OTC: WYGPF, ADR: WYGPY)–Aug. 29, 2012 (confirmed, FY 2012, end Jun. 30, 2012)