Bullishness for broad market Canadian stocks now outweighs bearishness for the first time since December 2005, and Canadian investment manager bullishness has crept up across all equity asset classes this quarter, according to the latest Russell Investment Manager Outlook.

Most notably, the outlook for EAFE (Europe, Australasia and Far East) equities skyrocketed as manager bullish sentiment rose dramatically to 62% this quarter from 36% last quarter.

“Heightened manager enthusiasm for EAFE markets reflects the slumping manufacturing and housing sectors in the U.S., the growing strength of EAFE currencies and the relatively low valuations of regional equities,” says Tim Hicks, chief investment officer, Russell Investments. “After the fear and tension that pervaded the earlier quarters in 2006, investment managers may now be transitioning to cautious optimism.”

Managers raised their bullish sentiment for broad market Canadian equities 8 percentage points to 36% this quarter from 28% last quarter, while manager bearishness for the same asset class fell to 34% from 39%. Even with this positive development, only 2% of surveyed managers indicated that they believe the Canadian market to be undervalued. Manager sentiment for U.S. equities experienced a negligible gain of 1% to 51%.

Managers expressed their greatest enthusiasm for the Financial Services sector for the second survey in a row. Also for the second quarter in a row, 68% of surveyed Canadian investment managers were bullish on the sector. Consumer Staples, a sector often leveraged as a defensive play to protect against a weakening economy, suffered as managers demonstrated their new confidence and certainty about inflation and interest rates. Manager bullishness for Consumer Staples tumbled 20 percentage points to 32% this quarter from 52% last quarter.

“Manager bullishness for the Financial Services is consistent with the more general optimism around large cap growth stocks and a sense that rates may have peaked,” says Hicks. “It may also be a reflection of the desire for yield alternatives following the decline of income trusts.”

Nearly one half (47%) of investment managers believe that the price of oil will be lower at the end of 2007 than it is today, compared to the one quarter of managers expecting a rise in oil prices. The managers seem to believe that the expected decline in oil prices has already been factored into the market as the sentiment for energy stocks remains virtually unchanged at 20% bullishness.

Canadian bonds retained the same level of manager support as last quarter (33%), but quite a few investment managers moved from neutral to bearish as manager bearishness increased from 23% to 35%. Although manager bearishness for Canadian high-yield bonds changed negligibly from 56% last quarter to 57% this quarter, bullish sentiment rose to 26% from 10% last quarter.