Investor confidence booms

Investor’s confidence has bounced back from the post September 11 slump, jumping 23% reveals the latest ASB Bank Investor Confidence Survey for the March Quarter.

A net 19% of respondents now expect better returns from investments over the next year, up from minus 4% in the last quarter of 2001.

Confidence has rebounded to levels similar to those shown in the first quarter of 2000 (the net 21% for Q1 2000 was the highest recorded level).

The rebound was predicted last quarter by ASB Bank Investments’ chief manager, Roger Perry, and has come after the dent made by the September 11 terrorist attack, and uncertainty around the war in Afghanistan.

The turnaround in confidence has been substantially driven by the rising interest rates, Perry believes.

"The RBNZ increased the Official Cash Rate from 4.75% to 5% in March and again to 5.25% in April, with further rises predicted. This has been a key factor causing investors in term deposits to improve their perceptions of future prospects. Term deposits are viewed as giving improving returns by respondents, with 12 month term deposits rising a full per cent during the quarter from 5% to 6%.

"The recovery in the housing market has also been an important contributor, with a net 30% of investors who hold property being positive about future returns. However, at this stage the survey does not point to a more widespread interest in residential rental property as an investment.

"Direct investors in the share market are the most optimistic group, with a net 50% of respondents whose main investment is in shares expecting better returns over the next year," he says.

"ASB Bank’s feedback from the market indicates that for most investors there is still a preference for holding cash investments, with small investors waiting for evidence of a sustained improvement in returns before investing. In contrast, large investors have been steadily re-entering managed funds and share markets since the dip following September 11 last year."

"We saw a recovery in returns from managed investments during the December quarter, after almost 18 months of decline, but returns were flat again in the March quarter. Investors have also been expressing concerns about the effect of the escalating volatility in Palestine, and this may temper further improvements in confidence over the current quarter."

When respondents were asked which investment they thought would give the best return in the year ahead, managed funds continue to have the strongest support at 19%, but this was down from 21% in the previous quarter. Term deposits experienced a slight lift in support from 13% of respondents to 14%. Support for direct share investment also rose, from 8% to 10%, while residential rental property fell slightly in support, from 13% to 12%.

Regionally, South Island investors have gone from being the most pessimistic to being the most optimistic with a net 23% expecting better returns this year (up from a net minus 12%).

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