Managers eye growth as bears disappear, Russell survey says

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  • Sentiment towards equity markets most positive in five years
  • International equities back in favour with Aussie managers

Sentiment towards equities has hit a five-year high as managers ditch their pessimistic outlook and turn to growth assets in Australia and offshore, according to the latest Investment Manager Outlook (IMO) from Russell Investments.

Results from the quarterly survey of 35 Australian managers showed that, on a net basis, 69% of managers are bullish towards the Australian sharemarket.

“One of the most interesting things this quarter is there was a dramatic drop off in pessimism, with only 5% of managers bearish towards shares, down from the 30% last quarter,” said Scott Bennett, portfolio manager at Russell Investments. “The bears seem to have gone into hibernation this quarter.”

Three-quarters of managers expect the Australian sharemarket to be higher over the next calendar year. Around a third were extremely bullish, predicting the market to rally by more than 10%. Consistent with this positive sentiment, not a single manager thought the Australian share market is overvalued.

One of the managers surveyed as part of Russell’s IMO commented: “We are positive on the outlook for the Australian equity market, based on a constructive economic backdrop and valuations that are supportive especially relative to bonds. Australian listed corporations are in general very well capitalised and have strong growth prospects. We think there are strong signs of increasing M&A activity which we expect to continue into 2011,” said Neil Boyd-Clark of Arnhem Investment Management.

International equities supported by QE2 and strong AUD

This quarter’s survey also saw a major shift in the sentiment towards international shares, which went from neutral to overwhelmingly positive.

“The US Fed’s continued support for monetary stimulus has helped remove some apprehension from the minds of Australian investment managers about international equities,” said Mr Bennett. “The strong Australian dollar is also helping international equities to look more appealing.”

More appetite for risk and growth

The positive sentiment was also reflected in managers’ appetite for riskier sectors of growth-oriented assets, with small cap Australian equities gaining new favour.

“Risk aversion has abated and managers appear more willing to increase their beta exposure,” said Mr Bennett. “We have seen a good reporting season from the US and a robust one here also. Stronger company earnings as well as the recent surge in M&A activity are adding to the appeal.”

Sector wise, resources and energy led the charge, as US quantitative easing and a stabilising outlook for China calmed investor concerns over both economies.

There was a slight increase in positivity towards cash following the RBA’s rate increase and the expectation of further monetary intervention. However the interest rate sensitive asset classes, namely REITs and local bonds, suffered slightly on the increase.

“It’s encouraging to see sentiment bouncing back,” said Mr Bennett. “There are good opportunities in the market and this turnaround should provide investors with some confidence heading into the New Year.”

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