Although Australian managers are still cautious in their investment outlook, with a strong and growing preference for cash, they are increasingly optimistic about Australian equities and listed property trusts (LPTs), new research by Russell Investment Group has revealed.
Russell’s latest Australian Investment Manager Outlook (IMO) report found that a record 60 per cent of respondents preferred cash, up from 52 per cent last quarter and 43 per cent in the last quarter of 2007. Managers’ cautious sentiments were also evidenced in the rising popularity of Australian bonds — the highest in the report’s 12-year history.
The report also found that managers are increasingly optimistic about the local share market, with the number who consider it undervalued rising to a record 37 per cent. The number who considered it overvalued dropped from 43 per cent to just 24 per cent.
According to the report, managers are generally pessimistic about global equities, with 46 per cent bearish towards them — the highest level in the report’s history. By way of contrast, 37 per cent of respondents were bullish towards Australian equities, up from 27 per cent last quarter, with bearish views dropping from 48 to 40 per cent. Managers were also more optimistic about small cap equities, with bullish attitudes increasing from 16 to 20 per cent and bearish views dropping from 66 to 63 per cent.
The report also found a major shift towards LPTs, with the number of respondents bullish towards them rising from just 9 per cent last quarter to 22 per cent and those with bearish views falling from 77 to 54 per cent.
Russell senior investment strategist Andrew Pearse said the report confirmed that market volatility and the likelihood of a downturn in major economies worldwide has made Australian managers cautious.
“Not surprisingly, risk-free cash yields in excess of 7 per cent seem attractive in this environment. Even so, there is a clear sense that the market shakeout is returning value for investors with a longer time horizon.
“US managers, although battered by the sub-prime storm, can see a Federal Reserve-led recovery on the horizon. Australian managers can only wonder about the downside potential to domestic profits from RBA tightening and pin their hopes on the continuing resilience of the commodity markets.”
