FYI | Sep 29 2009
By Chris Shaw
The strong rally in the Australian equity market in recent months makes sense in the context of the latest Russell Investments “Investment Manager Outlook” survey, which shows Australian fund managers are positive on the market’s prospects over the coming year in a reflection of their view the worst of the global financial crisis is over.
The survey shows the outlook for almost all sectors has strengthened, to the extent sentiment among fund managers towards Australian equities is now at its highest level since the group’s manager survey began in 2005. The only exception to the improving outlook was with respect to international shares, which fell slightly.
According to Russell Investments associate portfolio manager Scott Bennett, the survey shows risk aversion has essentially disappeared as most managers see Australia as more resilient than other economies, thanks largely to confidence in the Australian banking system and the reliance on growth from China.
Of the 37 managers surveyed Russell notes 55% expect to see inflation returning to within the Reserve Bank of Australia’s target band of 2-3% by the end of 2010. Russell notes 57% of US fund managers expect inflation to be below 2% in that economy by the end of 2010.
For the Australian market generally 65% of managers are bullish, up from 63% in the last quarter, while only 8% of managers expect the market to fall over the next 12 months. This is an all-time low for the survey.
The industrial, consumer discretionary and financials sectors are seen as the most promising, with 69% of managers bullish on both the industrial and consumer discretionary sectors. For the consumer discretionary sector in particular this marks a significant turnaround given just 37% of fund managers were positive in the June survey. Additionally, the survey shows 58% of managers are bullish on international shares and 42% are bullish on Australian REITs, the latter being reaffirmed by company profit results in August coming in largely as expected.
Sentiment wasn’t as positive with respect to the telecommunications and utilities sectors as only 30% of managers expect these sectors to gain in the coming year, with a similar proportion of managers being bearish on both sectors. Cash is becoming more popular however, with 22% of managers now bullish towards holding cash against just 8% in the June quarter, likely reflecting the gains in the market since the previous survey and the fact the RBA has not cut interest rates further.
Sentiment towards Australian bonds improved slightly in the last survey but it remains the least supported asset class as only 16% of managers are bullish. It was a similar outcome with respect to the Australian dollar as the September survey showed 55% of respondents are bullish on the currency, down from 61% in the June quarter.
Overall Russell Investments notes 63% of managers see the market as fair value at current levels, while the majority of the remainder believe the market to be undervalued. This compares to two out of three managers seeing the market as undervalued in the September 2008 survey.
