International and domestic equities were the winners among chief investment officers (CIOs) in the September quarter, according to the Financial Services Council's latest CIO Index.
CIOs in Australia continued to favour equities over fixed income, with the majority of CIOs expecting Australian equities to perform 'well' and international and domestic fixed income to perform 'poorly'.
"The positive sentiment towards international and domestic equities indicates that CIOs are continuing to see them as good prospects for capital growth," FSC chief executive John Brogden said.
A view that central banks would continue to purchase bonds, coupled with low yields on government bonds, were the driving factors behind fixed income sentiment, according to the FSC.
Domestic and international property were also popular and increased from a neutral to positive position.
But CIO sentiment was still weak despite an improved reading of 5 in September, up 7 points from the June quarter reading of -2. (The index rates sentiment from -100 to 100).
The FSC said a strong domestic economy and weak global conditions continued to be drivers of sentiment in September, with positive data from the United States and increased prospects of keeping the euro intact were behind the increased optimism of CIOs.
"The positive sentiment can be attributed in part to the fact that the Euro crisis has continued for so long without a contagion effect to Australia and China, and apparently stronger political will in Europe to keep the euro intact," Brodgen said.
But CIOs' optimism was tempered by the looming impacts of deleveraging of sovereign debt in Europe and the US and an economic slowdown in China, the FSC said.