Caution is manager’s buzz word for 2003

PerpetualInvestmentsis predicting another year of disappointing returns for investors in both Australian and international equity markets, while listed property could again be the big winner in an otherwise stilted market.

According to chief investment officer Emilio Gonzalez, 2002 was the third consecutive year that most of the world’s major equity market indexes produced negative returns — a trend not seen since the 1930s.

While Australia is faring slightly better than some overseas markets, Gonzalez says the outlook for the coming year is not much brighter and that investors should ‘sit tight’ and concentrate on managing and averting risk in 2003.

“I think it is appropriate to be cautious in 2003. That caution is about as far as you want to go,” he says.

Perpetual head of Australian equities John Sevior says returns in the Australian market would again be disappointing in 2003, with company earnings unlikely to meet expectations.

“Investors will once again be disappointed with the trajectory and speed of earnings growth,” Sevior says.

Given the generally negative environment, Sevior says stock pickers who do their homework to find the best opportunities will gain the best results.

He says Perpetual was unlikely to be hampered by the recent loss of its most renowned stock picker, former portfolio manager Peter Morgan, who left the group last September to form his own boutique funds management outfit.

“It is a team effort for us. We have retained all the analysts that have been part of the team for the past seven years,” Sevior says.

In comparison to the ongoing woes in equity markets, the listed property sector has been one of the most impressive asset classes over the last year, returning 12.4 per cent in the 12 months to the end of November 2002, according to Perpetual.

Perpetual portfolio manager Sean Murray says the sector was expected to once again be a top performer in 2003, possibly producing double-digit returns.

The predictions from Perpetual come as new research suggests Australian funds managers are surprisingly upbeat about the performance of the Australian economy.

A worldwide survey conducted by Mercer Investment Consulting, which included the views of 33 Australian fund managers, found most Australian managers expect the local economy to continue to perform well by global standards.

“They expect unemployment to stay low at six per cent, inflation to fall and local shares to recover,” Mercer executive director Tony Cole says.

The issues Australian managers fear may potentially damage good domestic economic growth include the protracted drought and a slump in residential property sales, the survey found.

A war in the Middle East and the Bush administration’s ability to lift the US economy were also regarded as important issues facing global markets this year.

The survey also found that of the Australian managers involved, nearly 70 per cent disagreed with the idea of driving down the national debt through asset sales, maintaining that continued budget surpluses are not sustainable.

Just over half of the respondents believed market volatility will remain the same in 2003, while another third expect to see it fall below last year’s levels.

According to the survey, large caps “should outperform the small, but only by a slim margin”.

The worst performing sector for 2002, the IT sector, is expected to continue to struggle, while the second worst performing sector, healthcare, is expected to swing towards positive returns this year.

The Australian managers surveyed are expecting the popularity of alternative assets such as private equity, infrastructure and hedge funds to continue, with over a quarter predicting that allocations in these areas will rise to between five and 10 per cent by December 2005 at the expense of Australian and international equities.