Investors could experience plenty of good cheer during the holidays as 77% of investment managers are bullish on Canadian equities for the fourth quarter of 2010, according to the latest Russell Investment Manager Outlook.

“Canadian equities were the prime benefactor of improving sentiment, with the proportion of bullish investment managers up from 56% to 77%. Bears fell from 31% to just 15%. Although Canada is not immune to economic challenges — especially if the U.S. recovery continues to lag — our nation’s strong resource base is clearly a valuable asset as the global economy picks up steam,” says Sadiq Adatia, chief investment officer of Russell Investments Canada Ltd.

“This is reflected in positive sentiment towards the energy sector, which moved from 54% bullish to 80% bullish this quarter on the back of a rising oil price.”

Managers optimistic towards foreign equity markets

According to the survey, bullish sentiment towards equities surged in the fourth quarter of 2010. Not only are managers increasingly bullish across domestic, U.S., international and emerging market equities, but bears have dropped off markedly.

The outlook for international equities rebounded from 44% of managers bullish last quarter to 60% this quarter.

U.S. market sentiment rose a few points to 54% bullish, and bearish managers slid from 25% to 15%.

“While there is no great expectation of further downside in U.S. equities, especially given the Fed’s recent willingness to prop up the market with quantitative easing, the upside potential is not seen to be as compelling as that offered by stronger markets, such as Canada and the emerging world,” says Adatia.

Bullish sentiment rose from 47% to 69% for emerging markets, with only 8% of managers bearish.

“Emerging markets stand to benefit from the rehabilitation of the western consumer, but are also making strides in developing domestic demand — a two-pronged strategy that should lead to strong economic performance in the coming years,” says Adatia.

82% of managers have positive outlook for S&P/TSX Composite Index in 2011

Assessing the Canadian market as a whole, 58% of investment managers say it is fairly valued, about a quarter say it is undervalued, and only 16% believe it is overvalued. When it comes to predicting the performance of the S&P/TSX during 2011, overall 82% expect positive returns, and nearly one-in-three believe those returns will be 10% or higher.

“Indeed, in a market that offers high and increasing dividend yields, double-digit returns do not seem out of reach,” says Adatia.

Headquartered in Tacoma, Wash, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries.

IE