Over 75% of managers still expect positive returns in 2008 - despite
increased pessimism over sub-prime credit crunch implications
TORONTO, Dec. 31 /CNW/ - According to the latest Russell Investment
Manager Outlook, bullishness towards Canadian broad market equities has
dropped from 42% of managers to just 28%. As a result, bears now dominate
opinion for the first time in several quarters in the report by Russell
Even with the increase in bearishness, 77% of investment managers still
expect Canadian equities to post flat to positive returns in 2008.
"It seems that many managers are cautiously waiting to see how the
sub-prime credit crunch and rumours of a US recession will unfold, while at
the same time betting that the Canadian market will be in a position to move
ahead over the next 12 months," says Timothy Hicks, Chief Investment Officer,
Russell Investments Canada.
"In our opinion, the current spate of negative sentiment in the market is
fueled at least as much by a sense of uncertainty as by any serious
deterioration of economic fundamentals. Over the coming quarters, the true
dimensions of the sub-prime credit crunch will be revealed, and market
watchers will have a clearer picture of whether we are indeed facing the
possibility of an economic contraction, or merely a slower pace of growth."
Sub-prime lending woes and troubling economic indicators have triggered a
decline in bullishness towards equities among Canadian investment managers.
However, bullishness towards Canadian fixed income rose, indicating that many
managers believe bonds have found a level of support following the sharp
correction of earlier in the year. Bullishness towards Canadian bonds
increased from only 15% of managers to a full 39% on the heels of a sharp
correction earlier this year.
As ground zero of the credit crunch, bearishness for US equities has
grown in number from 27% to 42%. After a lengthy stint as managers' most
favoured market, bullishness towards EAFE equities plummeted from 67% to 37%,
and the number expressing optimism for emerging markets fell from 52% to 43%.
"The shift to a more bearish stance on equities comes amid not only the
credit crunch, but also a string of negative indicators. This includes
evidence of a slowing global economy, downward earnings growth revisions in
both Canada and the US, and a diminished corporate profit picture. Despite
aggressive measures by central banks to cut key lending rates and inject
liquidity into the market, investment managers appear to be approaching the
market with caution," says Hicks.
Additional key findings from the Russell Investment Manager Outlook
- Bullishness towards Information Technology slipped from 72% to 50%.
- Bullish sentiment towards Industrials dropped from 54% to just 29%
amid fears that a general economic slowdown would impact the
railways, manufacturing and construction companies in this sector.
- Bearish sentiment towards Materials up-ticked from 36% last quarter
to 45% in the latest survey.
- Bearishness rose nine points in the Telecom sector, from 28% to 37%.
One of the most significant issues facing Canadian telecom providers
is the spectre of foreign competition in the wireless space. With the
Canadian industry already running high costs relative to the global
market, the likelihood of lower data and call rates in a truly
competitive domestic market are cause for concern.
- Energy remains a divisive sector with 43% of managers bullish and 33%
bearish. A slight increase in bearishness this quarter may be the
result of lower energy demand due to a higher Canadian dollar and
higher energy costs due to Alberta's decision to sharply increase
Canadian Small Cap Stocks
- The outlook is a bit more severe for Canadian small cap stocks, with
bulls plummeting from 36% to 19%, and bears shooting up from 39% to
- This is likely a reflection of smaller companies' greater
vulnerability during a general economic slowdown, combined with the
fact that many of Canada's exporters are smaller companies with
heightened sensitivity to the strong Loonie.
Canadian Fixed Income
- High-yield bonds, which have been dramatically revalued in recent
months, have gone from a highly negative 72% bearish outlook to a
more moderate 58%, suggesting that investment managers are now
finding attractive valuations on a selective basis.
- This more bullish stance on bonds comes as sentiment towards the
Canadian dollar settles at 23% bullish and 34% bearish--hinting that
a number of managers believe the currency has found equilibrium at
- In the US, the falling dollar has been a boon to American exporters.
Nonetheless, the bulls have been reduced from 52% to 42%, and the
bears have grown in number from 27% to 42%.
- Favour for EAFE equities have dropped back in line. Bullish sentiment
plummeted from 67% to 37%.
- This could represent an overall recalibration of risk perceptions by
the market, and also the squeeze that a falling US dollar has placed
on many Eurozone exporters.
- Bullishness towards emerging markets was also knocked back a few
points, from 52% to 43%.
- Emerging markets are home to many basic industries, and are prone to
feeling the impact of a broad economic slowdown.
Detailed results and analysis from the Russell Investment Manager Outlook
are available on russell.com/ca
About Russell Investment Manager Outlook
Russell Investments conducted the Russell Investment Manager Outlook
survey between November 26th to December 11th, 2007. The survey was sent to
investment managers with a variety of investment focuses. Having a financial
relationship with Russell was not part of the criteria for being included in
In total, 34 investment management firms and 44 investment managers from
Canada participated in the survey. The large majority of individual
respondents to the Russell Investment Manager Outlook have senior-level
investment decision responsibilities, and are often portfolio managers. Other
participants included investment strategists, research analysts and others.
The manager research that Russell Investments conducts for investment purposes
is done entirely independent of Russell Investment Manager Outlook, and
responses to the survey are on a purely voluntary basis.
About Russell Investments
Russell Investments is a global leader in multi-manager investing and one
of the world leaders in investment consulting. Russell Investments advises
institutional clients with total assets of over C$2.0 trillion and manages
approximately C$229 billion in its investment management business.
Russell Investments supports its global operations by monitoring more
than 4,000 manager firms and their 8,600 products.
Russell Investments serves institutional and individual investors with a
full range of investment services, including investment consulting, investment
funds which include private equity and hedge funds, transition management, and
stock indexes. Founded in 1936, Russell Investments has its headquarters in
Tacoma, Washington, USA and has principal offices in Toronto, New York,
London, Paris, Sydney, Singapore, Auckland, and Tokyo. Russell Investments
Canada Limited is a wholly-owned subsidiary of Frank Russell Company. For more
information, please go to www.russell.com/ca.
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Copyright (C) Russell Investments Canada Limited 2007
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