Australian funds turn bearish on stocks - survey

MELBOURNE, Dec 19 (Reuters) - More than 40 percent of Australian fund managers expect Australian shares will deliver zero or negative returns in 2008, according to a survey on Wednesday.

The Russell Investment Group survey of 44 institutional fund managers found 43 percent expect flat or negative returns, 36 percent expect gains of less than 10 percent and 21 percent see another year of double-digit gains.

The December survey by the investment consulting firm found worries have grown on international and domestic markets.

"Globally, there has been the subprime mess, growing U.S. recession fears and oil prices near $100 a barrel. Locally, there are worries about stretched equity market valuations, a soaring Australian dollar, booming economy and possible Reserve Bank interest rate increases," the firm said in a statement.

On the 12-month outlook for Australian equities, 27 percent were bullish, down from 45 percent in the previous quarter's survey. Bears increased to 48 percent from 33 percent.

Australia's benchmark S&P/ASX 200 index .AXJO has risen 10.1 percent so far this year, after four years of double-digit gains.

In net terms, cash was the only asset class that Australian managers viewed positively, with 53 percent bullish on cash, up from 44 percent the previous quarter. It was the highest proportion since the survey began in 2005.

Russell senior investment strategist Andrew Pease said fund managers have downgraded expectations for most stock sectors, with little distinction between defensive and cyclical sectors.

"Sentiment on the consumer discretionary sector is now at its most negative in net terms in two years," he said.

The only sector that went against the downtrend was telecommunications, possibly because of a high dividend yield and relatively defensive earnings profile, Pease said.

About 77 percent of fund managers were bearish on the listed property trust sector, even before refinancing troubles unveiled this week by Centro Properties Group (CNP.AX).

Bearish sentiment on Australian bonds fell 15 percentage points to 43 percent. ($1=A$1.16) (Reporting by Victoria Thieberger; editing by Jonathan Standing)