Manager outlook takes on international flavour, says Russell survey

Recent global events have failed to suppress manager appetite for growth assets, according the latest Russell Investments Investment Manager Outlook (IMO) released today. In fact, for the first time in two and a half years Australian managers are favoring international shares over Aussie equities in a sign of increased confidence in a strong recovery across global markets.

The quarterly survey of 36 investment managers collects their top-line opinions on the direction of markets, sectors to watch and wider trends that could impact Australian investors.

Since Russell’s December 2010 IMO, managers’ appetite for growth assets has continued to develop with bullishness towards equity markets flowing through to the first quarter of 2011 with net sentiment towards international equities reaching its highest point since the inception of the IMO in 2005.

Russell portfolio manager, Scott Bennett, said growth assets had returned to favour with managers which he attributed to stronger growth being experienced in the US and signs of a European recovery being well underway.

“The strong Aussie dollar is making offshore assets appear cheap at current valuations and with all signs pointing to a recovery in developed international economies, managers are seeing increasing opportunities offshore,” said Mr Bennett.

Net sentiment on materials continued to be strong this quarter, reaching the highest point in the history of the IMO. Mr Bennett said ongoing demand by China and India for Australian resources had managers expressing confidence in the strength of the sector despite the high Aussie dollar.

On the home front, financials have recovered much of the ground they lost over the last 12 months. Bullish managers on financials increased by 24.5 percentage points to 55% this survey.

“Financials were looking very bearish in Q4 2010 and much of this was around fears of government policy intervention. This issue appears to have fallen by the wayside for managers this time around and the increased bullishness is a sign that people are reassured on the sector,” Mr Bennett said.

While the geopolitical events and natural catastrophes which occurred both at home and overseas in the first quarter of 2011 don’t appear to have dented managers’ confidence in international or local markets, managers are mindful of global events and the impact for Australian investors.

Topping managers’ list of events to watch is the sustainability of China’s growth. With Australia and China inextricably linked through the demand for local resources, managers identified the risk of a China slow down as a significant watch point for Australian investors in 2011.

“Given Australia’s reliance on resources to fuel growth, managers will be watching to see how the Chinese economy goes and whether they can maintain the double digit growth we’ve witnessed. That being said, we continue to see strong support for China and we’re expecting fairly strong growth out of that area,” Mr Bennett said.

On the potential impact of Australian-centric issues such as government intervention in the banking sector, inflation, a skills shortage and increased union activism, managers were much more benign.

“Managers’ bullish sentiment on the Australian market indicates a level of confidence, but local regulatory issues remain. However this concern for Australia-specific events was outweighed by the magnitude of global market shocks, which received a noticeably higher rating than local issues,” Mr Bennett concluded.