Managers sing from same song sheet

Three fund managers presented a strongly unified view on international shares at a special session of the Association of Superannuation Funds conference in Auckland yesterday.

The three managers, AMP Henderson's Paul Dyer, Andrew Bascand from Alliance Capital and BT's Craig Stobo, all agreed the outlook for international shares wasn't as bad as it appeared.

"Stocks are very cheap relative to bonds," BT's chief executive Craig Stobo says.

He says an analysis of the markets shows that it's not all "doom and gloom" and that people are being too pessimistic.

AMP Henderson investment strategist Paul Dyer noted that for the first time in a long time investors were getting a good risk premium for investing in shares.

AMPH has done an analysis of the US market which compares the national economic production in the US, against what companies say they are producing. The benefit of this crude cross-check is that the national accounts are considered accurate.

"Our sense is that there is not much rot below the surface."

Likewise, they all agreed sentiment was poor, mainly due to the press relating to issues such as accounting fraud.

Dyer put some of the recent issues into perspective saying, for example, Enron didn't fail because of accounting fraud rather it was a business failure. The dubious book keeping just hid the failure for a long time.

Stobo said the evidence coming out of the US, suggested that the economy was doing quite well.

For instance in the just completed second quarter reported season 62% of earnings results were on the upside. That is two-thirds of the companies reported stronger earnings than analysts had predicted.

Likewise the small and medium size business sector was buoyant, household wealth (due partly to strong house price rises) and spending continued to hold up.

While there was strong consensus on the outlook for international shares there were some differing views on what are the biggest risks to a recovery.

Bascand said Alliance Capital in Hong Kong thought it was the risk of a double-dip recession in the US, that is that economy had another leg down to go, while Dyer felt the threat of deflation was a big issue.

All three managers felt the case for being sufficiently underweight international shares doesn't stack up.

Bascand said the most promising sector was emerging markets, followed by Europe then the US.