Russell has poor outlook for Aussie shares
Russell Investments has a poorer outlook on Australian equities as international shares show greater earnings potential and Australia is impacted by overvalued commodity prices.
The Russell Investments 2011 annual global outlook revealed a favouring of riskier asset classes such as equities and property that are expected to present the best value in 2011.
Andrew Pease, Russell Investments' chief investment strategist for Asia Pacific, said it was now an interesting point in the recovery cycle when markets were not expensive but not cheap either.
“Therefore we recommend investors maintain a moderate bias to riskier or growth-oriented assets, in particular shares, which should continue to gain in value over the year ahead,” he said.
However, Russell favours international shares over Australian shares due to their greater earnings upside potential, as the Australian equity market was expected to face ongoing headwinds after underperforming in 2010 compared to global valuations, Pease said.
The US and Japan were in favour, while Russell remained cautious of European markets that would continue to battle with sovereign debt issues. Emerging markets were considered to have solid medium-term prospects despite the near-term risks of a slowdown in China and rising inflation that might trigger tighter monetary policy in many emerging market economies.
Pease said the outlook for Australia was also negativity affected by a commodities hype that has led to “speculative excess and too much financial demand pushing up values”. As such, there was also a negative outlook for the Australian dollar.
Russell did not favour global government bonds as it expected the rise in long-term interest rates had further to play.
Pease said that while volatility would continue to be a theme due to Europe’s debt crises and geopolitical pressures such as in South Korea, investors should take a long-term perspective to take advantage of strong global profits and solid corporate balance sheets.
“A moderate amount of risk should deliver investors the best returns,” Pease said.
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