Investors switching on optimism about sharemarket.
Rising confidence about global growth prospects, coupled with the fall in the Australian Dollar (AUD), has led investment managers to be optimistic about the share market, according to new research produced by global asset manager, Russell Investments.
The Investment Manager Outlook (IMO) is a biannual survey which captures the views and insights of around 30 Australian fund managers on market sentiment and their views on sectors, styles and upcoming trends affecting investment strategy.
Bullish sentiment is rising for both international and Australian shares, with managers preferring international shares (71%) over Australian shares (65%). 71% of managers now consider Australian shares to be fairly valued.
According to Russell Investments Director of Client Investment Strategies, Scott Fletcher, this shift in sentiment shows that managers have greater confidence in the global recovery.
“With improving U.S. economic data and signs of growth picking up in the Euro-zone, it appears managers believe the worst is over and share markets can move higher in the medium term,” he said.
The survey also reveals 74% of managers are positive about the Coalition’s victory, as many expect more consistent policies and the removal of mining and carbon taxes to reduce uncertainty and increase investor confidence.
However, while the recent election and change in government is considered a positive, Mr. Fletcher warns issues remain in the marketplace which could create market instability in the short term.
“Considering the ongoing discussion around Fed tapering and the geopolitical unrest, we remain cautiously optimistic on the domestic share market in the near term. Events such as the U.S. government shutdown and potentially higher bond yields are significant short term global risks that might cause market volatility to rise,” he said.
The survey also reveals the exporting sector of the market to be a major beneficiary of AUD depreciation over the past six months. This is expected to continue as 81% of managers believe the dollar will settle between 81 and 90 U.S. cents in the next 12 months.
Declining commodity prices, economic growth and diverging interest rate movements are the key themes that managers expect will drive the performance of the AUD going forward.
Manager preference for cyclical assets continued on a sector level, with the biggest shifts in bullish sentiment in energy, up from 42% in the last survey to 77%, and materials, up from 39% to 58%. The energy sector has
benefited from recent oil price gains, which is expected to continue provided the Chinese and U.S. economies stabilise and improve.
On the flip side, A-REITs, domestic bonds, cash and the AUD are some asset classes which managers continue to remain bearish.
The results of the survey largely indicate fund managers consider share markets to hold the best investment opportunities both at home and overseas: Russell’s strategists broadly agree with this among signs of market recovery, but investors need to be wary of near term risks which add uncertainty.
“At Russell, we believe in the importance of closely monitoring and responsibly adapting to changes in the market environment in order to manage risk and capture investment opportunities as they arise. Responding is one thing, but the ability to separate ‘noise’ from ‘substance’ will help keep investors focused on the main game and avoid knee-jerk reactions. This is where global access to capital market insights becomes critically important in informing portfolio changes” Mr. Fletcher said.
