Canadian managers increasingly bearish

The number of Canadian investment managers calling themselves bears is growing due to recent economic developments, according to a survey.

The latest quarterly survey from Russell Investments shows that Canadian investment managers bearish on the Canadian stock market increased to 19% from 9% three months earlier. At the same time, the percentage of managers considering themselves bullish toward the Canadian stock market slipped slightly to 63% from 69%.

Reasons behind the pessimism range from indications of slower economic growth, the Greek government’s debt crisis and the Gulf of Mexico oil disaster.

However, respondents’ outlook toward the Canadian stock market was sunnier than for other markets. For emerging markets, the proportion of bulls dropped to 58% from 72%, while for Europe, Australia and the Far East, it was down to 33% from 46%.

However, bullishness for U.S. markets improved to 61% from 53%.

Fair value

A majority of managers (60%) believe the Canadian stock market is fairly valued, while 30% say it is undervalued and just 10% feel it is overvalued.

“Canada remains attractive to investors as we emerge from the recession in much better shape than many other markets, thanks, in part, to strong corporate earnings,” says Sadiq Adatia, chief investment officer of Russell Canada.

The survey also notes that the number of managers saying they are bullish toward EAFE equities dropped 13 points to 33% this quarter.

“In our view, the countries that have recently assisted Greece may soon need that capital to solve their own problems,” says Adatia. “We see issues mounting for Portugal, Spain, Italy and Ireland, and [we] predict slow growth in this region for the foreseeable future.”

Bullishness on Canadian bonds—which was at an extreme low of just 3% of managers last quarter—rebounded substantially this quarter. Twenty-four percent of investment managers now say they are bullish, while bears fell to 48% from 71% of managers. Bullishness toward cash also rose, to 14% from just 9%.

Despite the current volatility, Adatia believes that investors who have positioned their portfolios for diversification and long-term growth will be rewarded.

“Our view is that volatility will remain high in the coming quarter,” he says. “That said, the world is still moving toward economic recovery, with Canada and the U.S. on the right track. Current jitters will subside, and we continue to believe that remaining fully invested and properly diversified is the best way to benefit from near-term market pullbacks and maximize gains over the long term.”

(06/29/10)