Morningstar reduces its exposure to Australian shares

Morningstar has cut its tactical asset allocation to Australian equities from 24 to 22 per cent following the results of its latest expert asset allocation panel review.

The research provider stated that the panelists were less confident about growth assets continuing to outperform defensive investments and were concerned that investor sentiment had shifted from "fearing the worst to being surprised" by the current economic outlook.

In its economic update for the April/May period, Morningstar stated that the outlooks for the Australian economy and share market appear less positive than was previously the case.

The report stated that one of the main concerns for the panel was the ramifications of the nation's "two-speed economy".

While the resources trade boom had up until recently been quite robust, it was now "wobbly at the margin", a panel member said.

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In light of Australia's high exposure to international shocks, the restrained domestic economy and relatively expensive share valuations, Morningstar also increased its defensive assets exposure by upping its international fixed interest allocation from 6 per cent in January 2012 to 8 per cent in April.

Furthermore, Morningstar's review said that the panel was "considerably warmer to the idea of corporate debt".

"You are being paid adequate compensation for corporate credit," a panellist said.

"Yields have come in a long way to something like fair value, they're certainly not expensive."