Fund managers say Aussie sharemarket is no longer overvalued: Russell survey

  • Australian fund managers more wary of global concerns than their US counterparts
  • Opportunities exist in resources sector but managers cold on Telcos

Now could be a good time to get back into Australian equities with Australian fund managers believing the market is no longer overvalued, according to Russell Investments’ September Investment Manager Outlook (IMO).

Results from the quarterly survey of Australian managers showed that for the first time in nearly two years, none of the managers surveyed believed the local market was overvalued, which is a good signal for investors, said Russell’s portfolio manager Scott Bennett.

“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,” Mr Bennett said. With 60% of managers bullish on Australian equities versus 20% of managers that were bearish, the asset class has remained managers’ favourite for the fifth quarter running.

Global growth concerns still weighing on investor sentiment

Global concerns appear to be weighing heavily on Australian fund managers’ outlook for international shares, with 36% per cent bearish on the asset class due to concerns about a possible US double-dip recession, ongoing concerns in Europe and also whether China can sustain its momentum.

This is in contrast to the June IMO, when managers were decidedly bullish towards international equities.

Overall, Mr Bennett said managers were forecasting sluggish returns from international equities at least until the end of this year, if not for the next six months.

By contrast to Australian managers’ neutral view on international equities, results from the US IMO released last month showed the majority of US managers were more bullish with 57 per cent favoring international markets.

Mr Bennett said the different views of Australian and US managers about the global outlook could be attributed to framing.

“For Australian managers, the international outlook will appear quite bleak compared to our relatively strong performance. However, manager sentiment in the US was more upbeat about a US recovery and that of emerging markets, which may be due to the fact that they have seen how bad things can get and the outlook from here appears relatively better,” Mr Bennett said.

Managers warm to resources but give Telstra the cold shoulder

Mr Bennett said managers were particularly upbeat about resources in September with two out of three managers optimistic about the sector 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 Mr Bennett.

Managers also viewed telecommunications as the weakest sector in the market, with the proportion of managers bullish on the sector more than halving since the June survey, from 31 per cent to just 12 per cent. Russell attributes the bearish view to the latest earnings downgrade from Telstra.

“The managers’ view on telcos is largely a Telstra story. This stems from the earnings downgrades that came out from Telstra in the most recent reporting season. 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,” Mr Bennett said.

Although managers were optimistic about Australian shares, they were still cautious about taking on more risk.

“Despite attractive valuations for Australian equities, managers are favoring defensive sectors such as consumer staples as a way of hedging their bets against global concerns that are weighing heavily on sentiment,” he said.

To view a webcast of Scott Bennett discussing the key findings of the Investment Manager Outlook, visit the Russell Investments website.

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