Shares still cheap amid
short-term uncertainty:
latest Russell Investments survey
- Majority of managers expect the S&P/ASX 200 Index to finish the year above 3500
- Three out of five managers think Australian shares are undervalued
- Managers less bullish about Australian shares than in the previous two quarters
SYDNEY, 24 March 2009 - Australian fund managers continue to be cautiously optimistic on the long term outlook for Australian equities despite the battering many sectors received in the first quarter of 2009.
Russell Investments recently surveyed 40 leading Australian fund managers for its latest quarterly Investment Manager Outlook (IMO).
While fund managers are dispirited in the short-term by ongoing market mayhem, they continue to acknowledge strong long term value in Australian equities, with 59 per cent of managers perceiving the broad local market as undervalued.
What’s more, the majority (60 per cent) of managers predict the S&P/ASX 200 Index to finish above 3500 at the end of 2009, of which 15 per cent are even more upbeat and predict the Index to finish the year at 4000-4500.
Severe volatility across global markets has also served to reinforce a bias towards the domestic market, with managers more bullish on local equities compared to international stocks for only the second time in the history of the Russell survey since it began in June 2005.
Andrew Pease, Investment Strategist at Russell Investments, said: “It is evident that fund managers believe the local market is cheap at present and will continue to offer value throughout the year. However, they also feel bruised and beaten from a lengthy period of market carnage and this is evident in their short term uncertainty.”
Sector Outlook
Fund manager sentiment on almost all asset classes and sectors weakened this quarter. The bleak outlook is most pronounced for Australian small caps and real estate investment trusts.
Sentiment towards the troubled listed property market took a nosedive in March, with 61 per cent of surveyed fund managers now doubtful of future prospects. The sector lost two thirds of its value over the last 12 months and only 26 per cent of managers are willing to venture in at this stage. The situation for US real estate was predictably worse, with only 8 per cent forecasting a real estate upturn in the next year.
Optimism was strongest for the healthcare sector, with 56 per cent of fund manager expressing confidence towards the sector versus 28 per cent who are bearish. The healthcare sector has had an impressive run relative to the broader market as a result of its resilient defensive characteristics.
The outlook for the consumer staples sector was more mixed. The sector now appears branded with the ‘expensive defensive’ tag and managers are divided on its future prospects, with 30 per cent of managers bearish towards the sector compared to 36 per cent bullish.
Not surprisingly, cyclical asset classes such as consumer discretionary stocks have been severely punished as a result of the recession. Well known as the classical recovery sector, less than 25 per cent of managers can see the consumer discretionary sector rebounding in 2009 and just over 50 per cent expect further declines.
However not all cyclicals are out of favour. Energy is benefiting from the recovery in the oil price, which at the time of this survey had rebounded 25 per cent from its January lows. Only one in four managers are now bearish on the sector while nearly half are bullish. This view is also shared by US managers who are inclined to be bullish on their local energy and oil sectors.
Approximately 50 per cent of surveyed managers expect Australian bonds to decline in value from the recent return highs and nearly two out of three managers are bearish on cash.
“The sector outlook is a telling sign of the uncertainty and confusion Australian fund managers are feeling about the market at present. The majority of managers appear to agree that investing in anything other than shares right now isn’t a great idea and they are sticking to defensive stocks such as healthcare and consumer staples. The positive sign for the March survey is that the majority of managers think that the year can end on a higher note,” Mr Pease said.
The Russell IMO surveys Australian fund managers each quarter on their sentiment across a variety of investments, including local and international equities, Australian real estate investment trusts, bonds and cash. Forty fund managers responded to this quarter’s survey from 26 February to 6 March, which provides one of the most comprehensive indicators of current market sentiment available in Australia.
Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 (“RIM”). This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. This information has been compiled from sources considered to be reliable, but is not guaranteed. RIM is part of Russell Investments (“Russell”). You can contact Russell by visiting www.russell.com.au or by phoning (02) 9229 5111. MKT/2007/0309