Australian fund managers have upbeat expectations of how capital markets will perform in 2003, according to a survey by Mercer Investment Consulting.
The survey, which included 33 Australian fund managers among a total 180 surveyed worldwide, found that Australian managers expect the economy to continue to perform well. “They expect unemployment to stay low at six per cent, inflation to fall and local shares to recover,” says Mercer Investment Consulting executive director Tony Cole.
What could potentially damage domestic economic growth, however, is the protracted drought together with a slump in residential property sales. A war in the Middle East and the Bush Administration’s ability to lift the US economy were regarded as important issues facing global markets this year.
“Investors will be relieved to hear that managers expect positive returns for global equity markets in 2003. A sobering point to consider, however, is that most global managers were expecting positive returns this time last year as well. Let’s hope that they are right this time around,” says Cole.
Participants saw the long-term sustainable equity risk premium (the additional returns that equities are expected to deliver over and above long-term bonds) edging down to 4 per cent. In the Australian market, historically, it has been about 6 per cent, but Mercer’s own expectation is lower, at 3.8 per cent.
Most local managers in the survey believe that inflation is at its cyclical peak and anticipate a drop to 2.5 per cent, which is the mid-point of the Reserve Bank of Australia’s range.
The best asset mix for a balanced fund at the end of December 2003, according to the managers in the survey, includes slightly higher allocations to overseas fixed interest, fed mainly by a lower allocation to Australian fixed interest.
