The recent decline in interest rates and likelihood of more in the near future would divert investors' strong appetite away from cash in favour of equities, according to Macquarie Funds Management.
"What we have seen recently, given the high interest rates... is more money being diverted away from other asset classes such as equities into cash," Macquarie Funds Management equities portfolio manager Philip Pepe said.
"But as interests rates fall, asset values increase, so it is quite positive for a majority of asset classes as most sectors do better in a declining interest rate environment."
Investors' views on the equities market will become more positive as a result of declining interest rates, Pepe said.
"You will see the attractiveness change on these two asset classes [cash and equities], and with the lower interest rates people will consider investing back into equities," he said.
The Reserve Bank of Australia (RBA) now needs to ensure that interest rate reductions are managed, to slow the economy rather than hitting the brakes too suddenly, according to Pepe.
"Because then you will get rising unemployment and a reduction in spending, before you get the recovery, so that is what the RBA is trying to manage very carefully at the moment."
