Acadian Asset Management senior vice-president Rick Barry says the market focus for the second half of 2003 will be on value stories that have potential to outperform in a world of slowly rebuilding economic confidence.
The house view, he says, is:
* The forecast for Australian equities is modestly positive, with the Australian market ranked roughly in the middle of developed markets;
* The appreciation of the Australian dollar over the past several months has brought the currency to more fairly valued levels. The current forecast is neutral/very modestly positive for the currency. A stable currency would reduce the risk of global diversification for an Australian-based investor;
*A gradually improving world economic climate supported by expansive monetary policy and improving corporate earnings. These factors should support world equity returns;
* In terms of specific asset allocation, the US market is relatively expensive and we are underweighted in this market currently. However, the wide range of valuations within the United States makes it possible to find very attractive individual US investments;
* We are underweighted in Europe overall, but we find several individual European markets are very attractive, and these are among the portfolio’s largest overweightings. These markets include Germany, Spain and Belgium;
* Developed Asia is close to neutral in our current global portfolio although markets in emerging Asia, and other emerging markets in Latin America and Europe, are overweighted; and
* The outlook for the world economy and global equity markets is one in which a disciplined focus on valuation, together with improving earnings trends, should be most rewarded.
The group predicts significant outperformance by emerging markets overall in comparison to both blue-chip equities and other asset classes during the next five years, given current conditions.
