Mercer has advocated that investors remain overweight position in global equity markets relative to overvalued bonds.
Head of Mercer’s Dynamic Asset Allocation team in Australia and New Zealand, David Stuart, said despite the shake-up caused by world events in the first quarter of the year, global equities had proved resilience. Mercer was advocating an overweight position in global shares relative to ‘overvalued’ bonds, he said
“With the exception of Japan, which has fallen nearly 10 per cent since our last report in January, major equity markets have delivered positive returns, led by the S&P500 rising 3.6 per cent. Given the backdrop of the Japanese earthquake, political turmoil in the Middle East and North Africa, resurgence of European debt worries and rising inflation pressures in major developing economies, this is a resilient performance and a promising sign for investors,” said Stuart.
He warned that the rally in the Australian dollar compared to a weak US dollar has left the Australian currency exposed. Mercer has therefore remained a medium term biased towards overseas currency-exposed assets which should remain overweight, he stated.
“With the Australian dollar at a post-float high against the US dollar close to US$1.10, we are currently experiencing a sweet spot of strong commodity prices and rising interest rate differentials. However, this strength will be hard to sustain once US interest rates begin to rise, and there are downside risks to commodity prices in the medium term,” said Stuart.
“This isn’t expected to happen until 2012, but if the US dollar turns, it could also impact commodity prices and put significant downward pressure on the Australian currency over the next one to three years. Therefore we have placed a very conservative valuation on currency, shifting from unattractive to very unattractive.”
The research house has offered a silver lining after super fund returns saw the end of a five-month streak last month.
A survey of almost 6,000 fund members has identified weakening retirement confidence, particularly among those under 55 years of age, signalling an opportunity for super funds to better engage with members on their retirement journey.
The funds have confirmed the signing of a successor fund transfer deed, moving closer to creating a new $29 billion entity.
A number of measures, including super on Paid Parental Leave, funding to recover unpaid super, and frameworks to encourage investment in the energy transition, have been welcomed by the superannuation industry.
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