Fund managers forecast blue skies ahead
- Managers show most bullish sentiment towards Australian equities in last four years
- Majority predict inflation creep to 2-3 per cent by end of 2010
- Risk aversion among managers all but dissipated
SYDNEY, 29 September – Australian fund managers believe the worst of the global financial crisis is over and are strongly backing prospects for Australian equities over the coming year, according to Russell Investments' latest Investment Manager Outlook (IMO).
The outlook for almost all sectors has strengthened, with the sentiment towards Australian equities at its highest level since the manager survey began in 2005.
Russell Investments surveyed 37 leading Australian fund managers from 27 August to 7 September for its latest quarterly Investment Manager Outlook – one of the most comprehensive indicators of local investor sentiment available.
This quarter’s survey showed that the outlook for all asset classes has continued to improve since the June 2009 turnaround, except for a minor reduction in the sentiment towards international shares.
The increased confidence in the Australian economy was also reflected in attitudes towards future inflation, with 55 per cent of managers expecting the CPI to return to the RBA’s target range of 2-3 per cent by the end of 2010. US fund managers on the other hand were much more subdued in their expectations with 57 per cent expecting to see inflation below 2 per cent by the end of 2010.
Scott Bennett, Associate Portfolio Manager at Russell Investments said Australian fund managers have breathed a sigh of relief this quarter and clearly believe markets and the economy have finally turned the corner.
“Risk aversion has all but disappeared, with the majority of managers supporting the belief that Australia is more resilient than its larger counterparts. This view stems mainly from confidence in Australia’s banking system and Australia’s considerable reliance on growth from China,” Mr Bennett said.
Sector outlook
The outlook for international shares and A-REITs showed little movement this quarter, with 58 per cent and 42 per cent of manager bullish on the classes respectively. For A-REITs, the August profit reporting season helped to reaffirm positive sentiment, as most company results came broadly in line with expectations.
Risk assets remained the most highly favoured by managers, led by Australian shares. Sixty five per cent of managers expressed bullish outlook towards local shares, up slightly from 63 per cent last quarter. Industrials, consumer discretionary and the financials sectors show the most promise managers say.
Sentiment towards the telecommunications and utilities sector wasn’t so optimistic with only 30 per cent of managers expecting these sectors to rise in the coming year.
Cash roars back
The no go attitude towards cash was shed this quarter with 22 per cent of managers bullish towards holding cash, compared to 8 per cent in June 2009. The Reserve Bank of Australia decision not to further lower interest rates was a likely contributor to this improvement. Sentiment towards Australian bonds improved slightly this quarter, however still remained the least supported asset class with only 16 per cent of managers bullish towards this sector.
Fund managers continue to believe in the strength of the Australian dollar, although the drop of around 4c since the June 2009 survey was reflected in a fall of bullish views from 61 per cent to 55 per cent of respondents.
Nearly one in three surveyed managers assessed the market as undervalued this quarter compared to two out of three managers this time last year. Sixty three per cent of managers concurred on fair value.
“Overall Australian managers are seeing improving prospects for most asset classes and are particularly optimistic on the outlook for shares and listed property. This quarter reflected a robust outlook for Australia and there is a resounding belief the Australian market is coming out in front,” Mr Bennett concluded.
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.
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