Russell cautions against market optimism

Australian investors face a danger of markets becoming overly optimistic, according to the Russell Investments' November Barometer.

Russell warned that the current bullish international investor sentiment towards Australia might be overdone, despite Australia’s relatively strong economic position.

The report showed an optimistic outlook for the Australian economy, with gross domestic product growth of 0.8 per cent predicted for 2009.

However, according to Russell investment strategist and author Andrew Pease, many of the factors that supported Australia’s growth are now unwinding.

Pease said the combination of the strong Australian dollar, withdrawal of government payments to households and rising interest rates could see indicators such as retail spending soften in the coming months.

The report also showed that while most agreed the financial crisis was over, questions still remained as to whether the recovery would be “self-sustaining and robust” or “sluggish”.

“There is still plenty of cash sitting on the sidelines, meaning equity markets can continue to push higher before moving into outright expensive territory. However, global growth still faces some extra headwinds over the next few years as banks are unlikely to expand lending anytime soon and losses from commercial property lending may be yet to peak,” Pease said.