The Australian market continues at a robust pace, posting returns of around 12 per cent in the first half of 2007, but over half of the 55 fund managers surveyed in the latest Russell Australian Investment Manager Outlook (IMO) now believe local stocks are relatively overvalued.

According to the IMO, Australian managers now view global markets as a more attractive investing opportunity, with 54 per cent of managers surveyed responding that the local market is overvalued, up from 49 per cent in the previous quarter.

"The June IMO reveals managers remain cautious despite the strong performance of the Australian equities, small caps and LPT sectors. Even though certain sectors of the Australian market are really performing well - managers remain keen on the overseas equity markets," Russell chief investment officer for the Asia Pacific, Peter Gunning said.

Managers remain divided on the 12 month outlook for Australian shares, with 33 per cent bullish, 35 per cent bearish and 32 per cent neutral.

"Sector preferences remain broadly unchanged with sentiment strongly bearish on Small Caps, consumer discretionary, industrials, telecommunications and utilities and bullish on consumer staples, health care and financials," Peter Gunning said.

The latest report also showed that 70 per cent of managers believe that the private equity phenomenon is pushing valuations too high and introducing excessive leverage to the market.

"It seems that manager concerns relate mostly to the debt and speculation accompanying the merger and acquisition boom while accepting that private equity might be unlocking unrealised value and improving corporate performance," Peter Gunning said.

The survey found that 57 per cent of senior level Australian investment managers are bullish on the 12 month outlook for international equities compared to 17 per cent with bearish views, generally unchanged for the past five surveys.

The Russell IMO surveys more than 50 fund managers each quarter about their sentiment towards a range of investments including local and international equities, listed property trusts, bonds and cash.