As the economy continues to recover, a majority of investment managers have remained bullish on Canadian equities, according to the latest poll conducted by Russell Investments Canada Limited in late February and March 2010.

“This quarter, 69% of investment managers surveyed say they are bullish towards Canadian equities. But what’s striking is the slow-but-steady decline in the number of bearish managers since the bottom of the financial crisis one year ago. Less than 9% of managers are bearish about Canadian equities,” says Sadiq Adatia, chief investment officer of Russell Canada.

Asked to assess the overall valuation of Canadian equities, 57% of managers say the market is fairly valued — virtually the same proportion as in the previous quarter.

Approximately 21% of managers now believe the market is undervalued, and another 21% of managers feel that the market is overvalued. This represents a slight shift towards a more bullish outlook versus the last quarter of 2009.

Managers bullish on emerging markets

In terms of foreign equities, the sentiment towards emerging markets equities is strong, with 72% of investment managers expressing bullishness and only 9% saying they are bearish.

“We see a couple of factors at play here. Emerging markets are seen as benefactors of the recent strength in commodity prices. Two, emerging markets were largely spared the structural fiscal challenges facing other economies such as the U.S. and EAFE nations — witness the recent troubles in Greece. As the world waits for broad economic stability, emerging markets and Canadian equities may well be seen as offering the least downside risks,” says Adatia.

Bearish on bonds

The outlook for Canadian bonds is less inspiring with only 3% of investment managers now bullish, and fully 71% saying they are bearish.

Bearishness towards cash dropped sharply from 62% to 32% of investment managers this quarter.

Expectations for the Canadian currency are largely unchanged this quarter, with bulls down 7% to 53% of managers, and bears down 2% to 15% of managers.

The Russell Investment Manager Outlook is completed and distributed at the end of each quarter. This report includes responses from investment managers with a variety of investment focuses.

Russell Investments Canada Limited is a wholly-owned subsidiary of Tacoma, Wash.-based Frank Russell Co.

IE