The recent run of the Australian equity market has pensions managers there guessing as much as outsiders.

John Cann national manager remuneration and superannuation at Ansett Australia, based in Sydney, says: We don’t anticipate the Australian market is going to continue to be as strong as it has been in the last nine months, but we anticipate it will continue at current levels. And we are certainly hoping that it will not go down.”

The big concern within the market is outside influences, over which no one locally has any control, the most notable being what happens in the US. “Our greatest concern is, of course, the US market having an effect on the Australian market,” he says. Like other US watchers, he is wondering whether it has entered a new phase as experts claim and he is perplexed by the advice he is getting about the sustainability of current levels. “Current advice to us is that there could be a correction - but if there is, it won’t be much and the market might well stay at the current levels.”

But the crucial question as far as Australians are concerned is the extent to which there still is correlation between the US and the local market. “In the past, the correlation was considered to be quite high but in recent times this has not been so strong.” He points to the fact that in the US market’s spectacular climb was not mirrored to anything like the same degree in Australia. “Our growth has been much more subdued and what growth there has been has been in the nine months or so. People are wondering whether the correlation has not broken down, to some extent at least.”

The market’s run has, ironically meant a dramatic change in the Annsett’s defined benefit scheme, which has assets of over $A400m, of which is 38% invested in Australian equities. The portfolio has been with two balanced managers, says Cann. “But one of our managers underperformed in Australian equities by a substantial margin.” This led to a major review and the decision to bite the bullet and to restructure completely on the investment side. The defined benefit scheme is changing to a range of specialist managers as from April.

Both the defined benefits and the smaller defined contribution scheme assets have done well on the fixed interest side from the fall in interest rates. “There has been some good capital appreciation in that market,” says Cann. “The view now is that we are probably at the end of that cycle and we are likely to stay where we are.” Some had thought that rates might come down a bit further, but these hopes had been dashed with the recent rise in employment figures. “People are beginning to suspect there will be an increase in interest rates in the nine to 12-months range.”

Besides the Australian equity, the other asset classes of the Annsett Airlines defined benefit scheme as at mid-1996, were Australian fixed interest 11%, indexed bonds5%, overseas fixed interest 5%, overseas shares 23%, direct property 8% and listed property 5%, with the rest in cash.

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