Australian equities sentiment survey

Australian Equities have rallied strongly over the course of the financial year to date (+26% to 31 May 2021), driven by a rebound in earnings following a COVID-19 related rebasing, vaccine roll outs supporting a “re-opening” processes, and constructive macro settings including negative real yields and stimulus measures.

Against this backdrop, JANA has observed a notable improvement in the sentiment of Australian Equities investment managers over the past 6 months. During May, we surveyed a range of managers across various styles and the market cap spectrum, in order to validate the qualitative observations from our research process. Some key insights from the survey are summarised below.

Sentiment of Australian Equities investment managers is broadly supportive for the asset class at present.  The responses to the survey showed 91% of managers are seeing average or above average opportunities in terms of absolute upside for the asset class over a 1-2 year timeframe.

As a result, managers are increasingly fully invested, with median and average cash holdings reducing relative to 6 months and 12 months ago.

The largest opportunities are seen in Value stocks, with 64% of respondents indicating above average opportunities for the style.  Just 5% indicated below average prospects, despite the strong market rotation into cyclical stocks and value observed over the past 6 months.

In contrast, 50% of responses indicated a below average opportunity set for Growth, and only 9% seeing above average prospects.

Managers are also relatively constructive on the opportunities in Small Caps, with 95% submitting an average or above average response to the survey.

A total of 45% of investment managers indicated they were bullish on the prospects for the market based on underlying fundamentals or valuations, while just 5% indicated they were bearish at present.  A neutral view was submitted by a further 45% of investment managers.

Drilling into the details from a fundamental perspective, managers are generally viewing upside risk to consensus earnings and dividends estimates for calendar years 2021 and 2022.

Overall, it is interesting to observe the investment manager universe becoming increasingly constructive on the forward-looking prospects for the Australian market.  While sentiment has no doubt benefited from positive price action over the past 6 months, the inflection in earnings for cyclical stocks and Value exposures appears to be a key driver which managers believe are yet to be fully priced in by the market.  August reporting season will provide an important validation point in the context of the expensive trailing valuations for the market.