Australian large cap equities have outperformed fixed income by 23 per cent over the last 12 months although this is only expected to hold moderately over the coming year, Russell Investments' latest capital markets study has found.
As mixed economic signals continue to affect the local market, Russell senior investment strategist for Asia-Pacific Graham Harman said the low interest rate environment was expected to drive house prices to be balanced by a slowing domestic economy in the wake of a resource-sector boom.
Russell said it continues to favour equities over fixed income globally, particularly since bond yields have fallen sharply in response to the Federal Reserve's decision not to wind back its bond-buying program.
"Looking ahead to 2014, we expect to see a strengthening low-inflation recovery that favours equities over bonds, despite relatively full equity market valuations," Russell global head of investment strategy Andrew Pease said.
With the US still plagued by uncertainty around its monetary policy, Russell is favouring Eurozone equities for their cheapness and capital that continues to flow amid the easy monetary policy of the European Central Bank. Despite this, Russell stated that since the Eurozone's longer-term problems have not been solved, these positives only marginally outweigh the negatives.
"Looking at the path ahead, we believe additional volatility may continue, but this could be leveraged as an opportunity to increase tactical equity positions, such as within multi-asset portfolios," Harman said.
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