Australian fund managers believe the Australian share market is no longer overvalued, according to the Russell Investments’ September Investment Manager Outlook (IMO).
None of the managers surveyed said the local market was overvalued, the first time this had happened in almost two years.
“The last time managers said there was no overvaluation it proved to be a signal that the market was at fair value. So, investors should feel comfortable investing money back into the market at these levels, as long as they take a long-term view,” said Russell portfolio manager Scott Bennett.
Concerns about a potential double dip in the US and concerns in Europe meant managers were more likely to be bearish on the global market, in contrast to the June survey when managers were more bullish towards international equities.
Two thirds of Australian managers were positive towards resources following the revision of the Resources Super Profit Tax (RSPT), to the Minerals Resource Rent Tax (MRRT).
“Globally, Aussie resource stocks were heavily sold-off following the announcement of the RSPT in May. Since it was watered down to the MRRT, we haven’t really seen resource stocks regain their value, leading many managers to see opportunities in the sector,” said Bennett.
Telecommunications was viewed as the weakest sector, with just 12 per cent of managers bullish towards the sector compared to 31 per cent in June, possibly due to an earnings downgrade from Telstra.
“Also weighing on managers is the fact that Telstra’s dividend is under pressure as a result of falling margins in the mobile phone business and run off of their fixed line network,” Bennett said.
Although managers were optimistic about Australian shares, they were still cautious about taking on more risk, he said.
“Despite attractive valuations for Australian equities, managers are favouring defensive sectors such as consumer staples as a way of hedging their bets against global concerns that are weighing heavily on sentiment,” he said.
