Earlier this week we reported on the continuing optimism among big global fund managers about equities, especially in emerging markets and the US.
Cash was no longer king, and growth and risk were back in vogue, although there seemed to be the odd second thought about the longevity of the rebound in emerging markets.
Since then the markets have taken a hit, but seemed to steady on questions about the strength of the suggested steadying in activity. Europe remains weak, the US will see low inflation, interest rates and rising jobless and Japan is no better.
Yesterday the OECD and the IMF both upgraded Australia’s prospects this year and in 2010.
And as news of those upgrades spread, an uncertain start to the market gathered strength and we finished up a surprising 1.3% by the close, after Wall Street had finished mixed after the Fed’s post meeting statement.
And the Russell Investment group of consultants says that Australian fund managers have returned to levels of optimism not seen since before the beginning of the global financial crisis.
According to the June 2009 Russell Investment Manager Outlook (IMO) report this optimism extends across all sectors with particular enthusiasm directed towards the Australian share market and A-REITs sector.
The June survey found that 63 per cent of surveyed fund managers expect the Australian share market to continue its upward trajectory.
And while sentiment towards global markets is also strongly positive, managers are slightly more bullish towards domestic markets.
Following the strong market rally since the troughs of March 2009, almost 20 per cent of managers have upgraded their views on the domestic share market from undervalued to fairly valued.
The general opinion on domestic shares is that considerable opportunities remain in the market.
Increasing positive sentiment towards the domestic property sector was also evident in the results of the survey.
The net balance of bulls to bears for A-REITs, i.e. the percentage of bulls less the percentage of bears, landed in positive territory for first time in four years at +15 per cent this quarter – a significant improvement from the historical average of -40 per cent.
Andrew Pease, Investment Strategist at Russell Investments, said the key theme for this quarter was a steadfast rebuilding of confidence in markets – making managers more comfortable about putting risk back on the table.
“The increasing optimism that is evident across credit markets and riskier asset classes, and the move away from cash and bonds, demonstrates that fund managers now believe markets have turned the corner. Australia’s institutional investors are now dipping into higher risk asset classes in search of larger returns available from a rising market,” Mr Pease said.
The Russell IMO surveys Australian fund managers each quarter on their sentiment across a variety of investments including local and international equities, listed property trusts, bonds and cash.
Forty one fund managers responded to this quarter’s survey, providing one of the most comprehensive indicators of current market sentiment available in Australia.
Sector outlook
Cyclical sectors are back in favour as managers increasingly look towards higher risk, higher return options.
Materials, industrials, financials, energy and consumer discretionary all experienced significant increases in net bullish sentiments in this quarter.
The resources sector is also back in the limelight with the recovery of global economic growth and re-stocking by global manufacturers.
The outlook for the Australian dollar is also improving on the back of improving sentiment towards commodities.
Almost two thirds of respondents now expect the Australian dollar to rise in the coming 12 months.
Energy stocks showed the highest expectations out of the cyclical sectors with 72 per cent of managers expecting continuing gains, up from only 47 per cent last quarter.
Oil prices have partially rebounded from their lows in 2008, with oil prices recently reaching US$70 a barrel, up 60 per cent this year.
Confidence in credit markets is increasing as spreads begin to stabilise Half of the managers surveyed expect markets to take up to one year to return to ‘normal’, while the other half are only slightly less optimistic, expecting a recovery just before mid 2011.
Mr Pease said much debate centred around whether the recent rally in the share market is the beginnings of a sustained recovery or simply a brief respite before further falls.
“While fund managers remain cautious about the speed of the recovery, they acknowledge that all the key ingredients needed to support an economic recovery in Australia, including government assistance, deleveraging and risk re-ratings, are in place.
Furthermore, economic and financial indicators are signalling that the fundamentals are moving in the right direction,” he said.
