Investment managers are expecting a sustainable turnaround in the Australian share market within the next 12 months, the Russell Investment Manager Outlook (IMO) Q3 survey said.
The IMO surveyed about 40 Australian fund managers and found 77 per cent expected a turnaround in the local market to occur by the end of 2013.
It also found that 63 per cent expected a turnaround by the end of the 2012/13 financial year.
The key contributor to a potential market turnaround in equity markets was a resolution to the Euro-zone debt crisis, Russell Investments director of client investment strategies Scott Fletcher told InvestorDaily.
"[Fifty-four] per cent of managers cited the Euro crisis resolution as the most important contributor to a sustained local turnaround, while 51 per cent of respondents viewed stronger Chinese growth as the most important," Fletcher said.
In comparison, 33 per cent of North American managers said that developments in the Euro-zone would have the greatest impact on United States equity markets.
Following on from Europe and China, 46 per cent of Australian managers believed a weaker Australian dollar was the factor most likely to positively impact the local market, while 35 per cent said it was due to lower interest rates.
Thirty-two per cent of managers said the local market would be positively impacted by stronger domestic demand while 30 per cent said it would be driven by growth improvements in United States.
Fletcher said the results from both the Australian and United States IMOs demonstrated that while managers were more confident of a turnaround on fundamental or valuation grounds, the potential for further political and policy shocks in Europe and the United States kept investor sentiment fragile in the near-term.
"There's a tug-of-war between fundamental factors and macro drivers," he said.
"If you're looking for the market to turn around, none of the 40 respondents viewed the Australian stock market as overvalued, with the majority seeing the market as undervalued.
"If we can resolve those things, fundamentals come back to the fore and then you're more likely to see a sustained turnaround."
Growth assets including international shares and Australian shares maintained favour amongst managers, with the proportion of bulls edging slightly higher on the Q2 survey at 63 per cent and 73 per cent respectively.
In addition, sentiment towards domestic small caps also improved with about 60 per cent of respondents viewing the sector favourably, the survey said.
