The latest Mercer Dynamic Asset Allocation report has concluded that investors should look to place more of their funds in global equities.
The quarterly market review suggested global equities had been undervalued for the past two years and as such would provide the best investment opportunities for those investors looking toward a medium-term time horizon.
“While the markets have rallied in recent months, the window is still open for global equity investment at good prices. A stronger outlook for corporate profits has been built into valuations to some degree, but we still see the potential for impressive earnings growth, underpinned by significant improvement in operating margins,” Mercer head of dynamic asset allocation in Australia David Stuart said.
“Despite valuations moving closer to what we regard as fair value, we still believe global equities should offer above-average returns over the medium term and we are recommending institutional investors remain overweight in this asset class,” he said.
Regarding Australian equities, the Mercer report said these were of fair value now with any upside in the near future fully priced in, giving the asset class less appeal than the global equities sector.
Mercer said the recent rally on the Australian Securities Exchange had seen valuation measures tighten even further, meaning any possible improvement in company earnings and the economic environment had already been taken into account in present day prices.
While the research house is recommending an overweight position in global shares, it has taken a neutral opinion on emerging markets.
This is mainly due to the fact emerging market economies are now moving in line with the developed economies in terms of performance.
