Australian fund managers remain cautious about the outlook for equities and pace of any apparent economic recovery.

Russell Investments and heavyweight Perpetual are voicing divergent outlooks, amid a retreat from the market by small investors.

Russell’s June quarter survey of 41 Australian fund managers found 25, or 63 per cent, expect the local share market to continue climbing, albeit voicing caution about the speed of the recovery.

Russell investment strategist Andrew Pease said that economic and financial indicators were signalling the fundamentals underpinning share prices were moving in the right direction.

“(Fund managers) acknowledge that all the key ingredients needed to support an economic recovery in Australia, including government assistance, de-leveraging and risk re-ratings, are in place,” Mr Pease said in a statement.

The Russell report that the bullish turn in sentiment had produced a level of optimism not seen since before the start of the financial crisis.

It also said fund managers now expect credit markets to take just one year to return to normal.

However, Perpetual head of Australian equities John Sevior said he doubted the share market surge since March would continue and that the market would trend sideways in the months ahead.

“The stronger than normal recovery since then was a reason to be cautious,” he said.

Company earnings estimates for 2009/10 seem optimistic and it would take people several years to reduce their debt, Mr Sevior said.

Both fund managers’ comments came as evidence emerged that fewer retail investors remained in the share market.

The 11th share investor study by the Australian Securities Exchange (ASX) showed 41 per cent of adult Australians, or 6.7 million people, now own shares, down from 46 per cent in 2006.

Australia’s a proportion of share-owning investors is still second only to the US where 45 per cent of Americans own shares.

Fifteen per cent of all Australians used to own shares or listed investments but no longer did, the ASX said.

The ASX surveyed 2,400 adult Australians.