Investment managers expect a sustainable turnaround in the Australian share market within the next 12 months, according to a Russell Investments’ Investment Manager Outlook (IMO) survey.
According to the IMO, which regularly collects the opinions of around 40 Australian fund managers, 77 per cent of managers expect a turnaround in the local market to occur by the end of 2013, while 63 per cent see it happening by the end of the 2012/13 financial year.
Contributing the most to a potential turnaround in equity markets is a resolution to the eurozone debt crisis – a catalyst for 54 per cent of managers polled. This view has been echoed in the US, where 33 per cent of North American managers believed developments in the eurozone would have the greatest impact on US equity markets.
Close behind a European resolution, domestic managers also cited stronger Chinese growth (51 per cent) and a weaker Australian dollar (46 per cent), as factors most likely to positively impact the local market.
To a lesser extent, lower interest rates (35 per cent), stronger domestic demand (32 per cent) and an improvement in US growth (30 per cent) were cited as factors that would contribute to an eventual recovery.
More bears captured
Russell’s director of client investment strategies, Scott Fletcher, said the volatile “risk-on risk-off” pattern of the last two years was likely to continue until structural issues in the eurozone were on a firmer footing.
“The results from both the Australian and US IMOs show that while managers are more confident of a turnaround on fundamental or valuation grounds, the potential for further political and policy shocks in Europe and the US is keeping investor sentiment quite fragile [in the] near term,” he said.
“In this regard, the clear task for managers is to capture longer term value while managing shorter term event risks through genuine diversification and active risk management.”
The latest survey also saw a significant decline in the attractiveness of defensive asset classes.
The Reserve Bank of Australia’s decision to cut rates in May and June (and earlier this month), combined with declining interest rates and expectations of further cuts before the end of the year saw 69 per cent of managers bearish on cash, more than double the percentage of bears captured in the last survey.
Dynamically managed portfolios
Growth assets including international and Australian shares maintained favour among managers, with the proportion of bulls edging slightly higher on the last survey at 63 per cent and 73 per cent, respectively.
Sentiment towards the domestic small-caps sector also improved with around 60 per cent of managers viewing the sector favorably.
“Managers are continuing to see opportunities in the local market and, as has been the case all year, no managers surveyed believe the Australian stock market is overvalued, with the majority seeing the market as undervalued,” said Fletcher.
“It’s been a bumpy year to date with the Australian share market experiencing its fair share of volatility. However, we remain firmly of the belief that the path to superior long-term outcomes for investors will be via dynamically managed portfolios that are well diversified across (and within) multiple assets and strategies to take advantage of market opportunities as they present themselves.”
