Australia's leading investment managers believe an interest rate cut would be the most effective catalyst for the nation's sluggish economy, Russell Investments' latest Investment Manager Outlook survey showed.
A rate decrease was seen as most likely means of spurring activity in Australia's non-mining economy, according to 43 per cent of the 40 fund managers who took part in the quarterly survey.
The survey results signalled that sentiment was the key to economic improvement and a lower cash rate was the fastest way to boost sentiment, Russell managing director of consulting and advisory services Greg Liddell said.
"We've seen the market price in a series of rate cuts for the coming 12 months and as a result, managers are now viewing this as a pre-condition to kick-starting the non-mining economy, improving confidence and perhaps, but not necessarily, triggering a drop in the [Australian dollar]," Liddell said.
Market pundits believe recent comments by the Reserve Bank of Australia (RBA) signal a Melbourne Cup Day reduction in the 4.75 per cent official cash rate.
If so, it would be the RBA's first cut in more than two years. The last time the RBA cut the rate was in April 2009, when the rate was reduced by 0.25 per cent to 3 per cent.
In the meantime, fund managers plan to invest at home, with 77 per cent of them seeing Australian equities as undervalued, the highest percentage in the survey's six-year history, Russell said.
However, the number of managers said they were bearish on the Australian stockmarket grew over the quarter.
In terms of sector bias, 59 per cent of investment managers were bullish on industrials, up from 46 per cent over the previous three months, a view that stemmed mainly from solid cash flows and sound balance sheets, Liddell said.
"While pressure this quarter has come in the form of higher interest rates relative to the rest of the world, and a strong, albeit slightly lower, [Australian dollar] amid slower growth prospects, industrials are looking to be in good health from a balance sheet perspective," Liddell said.
"Managers are viewing this relative to other sectors and, as such, seeing value opportunities," Liddell said.
