Survey indicates a nervous close to year

Adverse market conditions appear to have given Australian investment managers a renewed appetite for cash, according to the latest edition of the Russell Quarterly Investment Manager Outlook (IMO) survey.

The December report, released this week, found that 52 per cent of Australian managers are bullish towards cash, compared to 14 per cent that are bearish.

According to the Russell analysis, the survey revealed that in net terms (bulls minus bears) cash was the only asset class that Australian managers viewed positively in the fourth quarter.

It said that Australian managers had, for the first time, become decidedly pessimistic on international equities because of worries about continued volatility in equity markets and that the worst of the sub-prime fallout is still to come.

“These managers have also shifted entirely away from last quarter’s positive sentiment towards Australian equities and are now, in net terms, the most bearish on the local equity market since 2005,” the Russell analysis said.

It said that in latest quarterly survey, managers had been circumspect about their expectations for the performance of the Australian share market in 2008 and that, not surprisingly, a significant proportion anticipated disappointing returns next year.

The analysis said that 43 per cent of managers expected that Australian shares would deliver zero or negative returns in 2008. Sixty three per cent anticipated gains of less than 10 per cent and just 21 per cent expected another year of double digit returns.

The Russell IMO surveys Australian fund managers each quarter about their sentiment towards a range of investments, such as local and international equities, listed property trusts, bonds and cash. With 44 responses from leading fund managers, it is one of the most comprehensive indicators of current market sentiment available in Australia.

Russell said the major themes for this quarter’s survey were Australian investment managers’ lingering concerns over the sub-prime debacle, growing US recession fears and oil prices reaching nearly US$100 per barrel, which resulted in the most cautious investment outlook since the survey’s inception in 2005.

It said locally, worries persist about stretched Australian equity market valuations, a soaring Australian dollar, the booming domestic economy and potential RBA interest rate increases.