Mercer prefers global shares over bonds

26 May 2011
| By Caroline Munro |

Mercer has advocated that investors remain overweight position in global equity markets relative to overvalued bonds.

Head of Mercer’s Dynamic Asset Allocation team in Australia and New Zealand, David Stuart, said despite the shake-up caused by world events in the first quarter of the year, global equities had proved resilience. Mercer was advocating an overweight position in global shares relative to ‘overvalued’ bonds, he said

“With the exception of Japan, which has fallen nearly 10 per cent since our last report in January, major equity markets have delivered positive returns, led by the S&P500 rising 3.6 per cent. Given the backdrop of the Japanese earthquake, political turmoil in the Middle East and North Africa, resurgence of European debt worries and rising inflation pressures in major developing economies, this is a resilient performance and a promising sign for investors,” said Stuart.

He warned that the rally in the Australian dollar compared to a weak US dollar has left the Australian currency exposed. Mercer has therefore remained a medium term biased towards overseas currency-exposed assets which should remain overweight, he stated.

“With the Australian dollar at a post-float high against the US dollar close to US$1.10, we are currently experiencing a sweet spot of strong commodity prices and rising interest rate differentials. However, this strength will be hard to sustain once US interest rates begin to rise, and there are downside risks to commodity prices in the medium term,” said Stuart.

“This isn’t expected to happen until 2012, but if the US dollar turns, it could also impact commodity prices and put significant downward pressure on the Australian currency over the next one to three years. Therefore we have placed a very conservative valuation on currency, shifting from unattractive to very unattractive.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

10 months 2 weeks ago
Kevin Gorman

Super director remuneration ...

10 months 3 weeks ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

10 months 3 weeks ago

The central bank has served up a disappointment for punters on Melbourne Cup Day....

7 hours ago

The fund’s inaugural chief retirement officer is looking to establish a new venture. ...

12 hours ago

The sovereign wealth fund remains cautious of the impact of high inflation as it announces a strong return in its latest update....

1 day 5 hours ago