Bear market not likely to end soon
By Anne Lampe | theage.com.au | 18 April
We haven't turned the corner yet when it comes to investment markets - but at least it is visible from here. A survey of 41 fund managers by Russell Investment Group has delivered bad news and good.
First, the bad news. Its March survey confirms trends from the previous quarter showing fund managers are risk-averse, with a record 60 per cent of respondents preferring cash - up from 52 per cent in the December survey and 43 per cent in September.
Andrew Pease, Russell's investment strategist, says this trend is also reflected in strengthening sentiment towards Australian bonds, the strongest in the survey's 12-quarter history.
Pessimism reigns on global equities, the proportion of bears rising to 46percent. Bearish managers outnumbered the bulls at 30 per cent on outlook for global equities.
CommSec's chief equities economist, Craig James, says the March quarter has produced plenty of blood in the water. The All Ords has fallen 15.7percent since January 1 - the biggest quarterly fall in 20 years.
Bruised worst are insurance stocks, which have lost more than a quarter of their value since the beginning of the year. Banks are down by 21.1 per cent and retailing plunged by 36 per cent as consumers pulled their heads in.
Faring better - but still down on value - are energy stocks (minus 4.3 per cent), materials (down 7.3 per cent), telecoms (down 8.5 per cent) and food and drug retailing (down 8 per cent.)
The good news is that, for the first time in nine months, Russell says more fund managers believe shares are now good value and James agrees, saying valuations are the cheapest in 19years.
Looking at the charts of manager expectations by asset class, bears and bulls are evenly positioned on the prospects for Australian equities, showing 39percent bears and 37percent bulls.
Australian small-cap equities and listed property trusts have a fair way to go before they win back fund managers' trust, 63 per cent being in bear mode on small-cap equities against only 20 per cent in bull mode. Property trusts are 54 per cent bears versus 22 per cent bulls.
Caution is still needed, however. The bulls are not about to rush out and start buying shares; they are just standing near the fence, thinking.
But more managers are telling Pease they believe value has returned to the sharemarket. In mid-2007, Pease says, it was a struggle to find a fund manager who viewed the Australian market as being fairly valued. He says the main message investors can take away from this latest survey is that Australian fund managers remain cautious in response to the high levels of sharemarket volatility and global uncertainty. But they are not overly pessimistic.
Not surprisingly, risk-free cash yields in excess of 7 per cent seem very attractive at present.
This is the biggest drop in share prices over a quarter since 1987. At that time, however, fewer people owned shares or had an interest in the sharemarket through their superannuation. Pease says this is all part of being in the sharemarket - investors get 4-6 per cent a year above the cash rate because they are prepared to take on extra risk.
Fund managers were also asked about their outlook for the local sharemarket returns for this calendar year - 44 per cent believe the market will end flat or down less than 10 per cent; 32 per cent expect returns of 10 per cent or less; and only 12 per cent believe the market will close up 10 per cent or more.
First published by TheAge.com.au on April 18 2008
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