Australian investment managers are bullish on local shares and Australian real estate investment trusts (AREITs) while leaving bonds in the dust, according to Russell Investments' survey of 40 managers in the past quarter.
The crucial reasons for decisions have been Chinese economic growth, the Australian dollar, European debt funding, interest rates, and the domestic labour market.
Russell's managing director consulting and advisory services Greg Liddell said the quarterly investment manager survey showed that in the first quarter of 2012 "managers' risk appetite visibly increased".
Relatively low bond yields spurred managers to consider local stocks which 64 per cent of managers thought were undervalued, with AREITs also drawing positive responses from 42 per cent of managers.
Thoughts on China were swinging between two extremes, Liddell said.
Some favoured a hard landing due to "China's public debt, weakening export growth and a potential housing bubble".
But, Liddell thought these arguments were "overblown".
The greater threat to China's long-term prosperity was "a potential recession in Europe, given Europe's high consumption of Chinese goods".
Managers preferred cyclical stocks over the more defensive, Liddell said, adding that was not surprising "given the 'risk on' tone that characterised the local market throughout the period".
However, the notable exception was consumer discretionary with the bears more than doubling in this sector from 20 per cent to 44 per cent.
Small-cap stocks had regained favour with 54 per cent of managers, with other bullish sectors being energy (56 per cent), industrials (55 per cent), materials (44 per cent), financials (44 per cent), and AREITs (42 per cent).
The bears were out in the traditionally defensive sectors of consumer staples (25 per cent), telecommunication services (18 per cent), and healthcare (18 per cent).
