Bears growling: Russell

After four years of strong growth on the Canadian stock market, the greatest growth now appears to be in negative sentiment, according to the Russell Investment Manager Outlook.

Although the majority of managers expect positive returns for 2008, the survey of 34 investment management firms found an increasing level of bearishness. Only 28% of those surveyed considered themselves bullish.

“It seems that many managers are cautiously waiting to see how the sub-prime credit crunch and rumours of a U.S. 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.

Investment managers are taking a more cautious approach toward the equity market, favouring fixed income investments instead. Early in 2007, only 15% of managers said they were bullish on bonds, but by the end of the year, this had risen to 39%.

On the equity markets, sentiment remains relatively strong for the tech sector, with 50% of those surveyed remaining bullish, down from 72%. Positive sentiment on industrials has fallen from 54% to 29%.

Outlook on materials has soured, as 45% said they were bearish on the sector, implying that the party may soon be over in the resource patch. But on the energy sector, managers were split: 43% were bullish and 33% bearish.

If enthusiasm for Canadian equities has dampened, the outlook on U.S. stocks is downright bleak. Among those surveyed, 42% of managers were bearish on American stocks, compared to 27% in the last survey.

Meanwhile, bullishness for Europe, Australasia and Far East (EAFE) stocks plummeted from 67% to 37%. Sentiment toward the emerging markets also suffered slightly, with bullishness falling from 52% to 43%.

“In our opinion, the current spate of negative sentiment in the market is fuelled at least as much by a sense of uncertainty as by any serious deterioration of economic fundamentals,” says Hicks. “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.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com