Latest Russell Investment Manager Outlook survey reveals that bullishness
towards U.S. equities climbed from 33% to 45%.
Bullishness towards Canadian equities dropped from 43% to 33%.
Russell Investment Manager Outlook Highlights
- Over 95% of investment managers think Canadian market is fairly-valued
- Less than one-in-five investment managers bullish on Canadian bonds
- Canadian investment managers more bullish on Information Technology,
Industrials, Consumer Discretionary sectors
TORONTO, July 9 /CNW/ - The U.S. and Canadian markets could be going in
opposite directions, according to investment managers surveyed in the latest
Russell Investment Manager Outlook.
The survey reveals an interesting turnaround in manager sentiment. The
U.S. market had been considered the world's economic Achilles heel for the
better part of the past year, yet bullishness towards U.S. equities climbed
from 33% to 45%, and bearishness dropped 13% to 31%.
In contrast, bullishness towards Canadian equities has dropped from 43%
to 33%. Digging deeper, bullishness towards the Materials sector - dominated
by gold stocks - plummeted from 62% to just 32%. And, while 51% of managers
remain bullish toward the Energy sector, bears have surged from 23% to 41%. In
addition, over 95% of investment managers say the Canadian market is either
fairly-valued or overvalued, as opposed to undervalued.
"Looking at the big picture, it's likely that investment managers are
simply finding better relative values in the weaker U.S. market than elsewhere
in the world, and may be looking to shift profits from Canada and other
markets back into American stocks," says Sadiq S. Adatia, Chief Investment
Officer of Russell Investments Canada Limited.
"In our view, this illustrates the increasing divide between those who
believe Canadian natural resources are in the midst of a long-term secular
growth trend driven by a fundamental shift in the global economy, and those
who believe we are merely witnessing a classic bubble."
The outlook wasn't entirely negative for Canada's sectors. Given the
widespread view that the Canadian economy is in for a slowdown, it's curious
to see the level of bullishness towards Industrials - such as airlines and
railways - climb significantly from 22% to 42%. Similarly, bullishness towards
the Consumer Discretionary sector rose from 19% to 32%. Information Technology
also saw bullishness rise considerably, from 40% to 69%, although it's
important to note that this sector is largely a proxy for Research in Motion,
which is perhaps Canada's best-known growth stock.
The Financial Services sector has two distinct camps: the 43% of
investment managers who are bullish and believe we will see a rebound within a
reasonable timeframe, and the 43% who are bearish and see the sub-prime debt
issue as a serious, long-term problem.
Canada isn't the only global market that stands to see increased capital
outflows as the U.S. returns to favour. Bullishness towards EAFE equities
slipped from 34% to 26%, and bullishness towards emerging markets fell from
36% to 28%.
"There appears to be a widespread realization that Canadian, European and
Asian markets are not immune to the slower growth, higher energy costs, credit
issues, and other challenges that were once seen as primarily the domain of
the U.S. However, where these markets have not yet priced-in any significant
downside, the U.S. market has already been driven to what some believe are
worst-case-scenario valuations," explains Adatia.
When asked what specific factors are negatively affecting equity
performance, 65% of investment managers cited a slowing economy, while credit
markets, low corporate earnings, inflation and energy costs were also cited at
a lesser extent. Interestingly, interest rate policy was identified by less
than 5% of investment managers. This could be because the market dislikes
uncertainty, and there is currently a high level of certainty that rates in
Canada and the U.S. will remain relatively unchanged over the balance of 2008.
Overall, investment managers continue to strongly favour equities over
bonds. With no immediate expectation of future rate cuts, bullishness towards
Canadians bonds sits at only 18%, and more than 61% of investment managers
polled say they are now bearish.
"In summary, market sentiment deteriorated somewhat in the second quarter
of 2008. A broad-based economic slowdown is the consensus view, and investment
managers are optimistic about only a handful of asset classes - most notably,
U.S. equities," says Adatia.
"At Russell, we believe diversification across multiple asset classes and
geographic regions remains essential in all market conditions. Having said
that, we share the view that U.S. equities now offer more attractive values,
and see opportunity in unhedged U.S. exposure as the greenback finds support
and the soaring Loonie takes a bit of a breather."
The investment managers expressed these views in the latest quarterly
Russell Investment Manager Outlook poll conducted by Russell in late May and
June of 2008. There were 46 respondents across Canada this quarter: 65% of the
respondents were portfolio managers, 9% were chief investment officers, 7%
were investment strategists, 2% were research analysts, other respondents
consisted of 17%.
Detailed results and analysis from the Canadian Investment Manager
Outlook are available on www.russell.com/ca.
For more information on the IMO research, please contact Thien Huynh
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Date of First Publication: July 9, 2008
For further information:
For further information: Thien Huynh, (416) 640-2529; Katita Stark,