Investors should significantly overweight domestic and international equities exposures over the next 12 months, at the expense of property and fixed interest, Goldman Sachs JB were chief economist Tim Toohey told the Australian Super Investors conference at Port Douglas yesterday.

Toohey named a number of factors pointing towards resurgent equities markets: that a “recession outcome” has already been priced in, that the spread between ASX 200 industrials grossed-up dividend yields and the cash rate was an attractively high 3 per cent, that US and Australian equity risk premia were 4 per cent and 6 per cent respectively making them cheap relative to bonds, and the simple fact that two consecutive years of negative global equity returns have only ever been recorded after major events like wars or the 1970s oil price shock. GSJB Were is forecasting the Reserve Bank of Australia to make 125 basis points of additional interest rate cuts to the end of 2009, an environment in which in equities traditionally do best. Listed property trusts historically do best of all in an easing cycle, however Toohey still recommended a down weight of these due to overhang effects of the credit crunch. Broadly, Toohey recommended that over the next 12 months domestic equities be upped from a benchmark 37 percent to 40 per cent and overseas shares from benchmark 27 per cent to 32 per cent. Preceding Toohey, Macquarie Funds Group chief economist Lewis South forecast only one more 25 bps rate cut this cycle, as his growth outlook was far more bullish than Toohey’s. He advised against up-weighting equities until at least next year when the outlook for commodities prices and the future of financials were clearer.

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