Allocating money to NZ assets in 2005

Now that the New Zealand sharemarket has enjoyed two stunning years, it may be time for investors to pocket at least some of their profits, Diversified’s Norman Stacey says in this latest economic review.

Thursday, January 20th 2005, 6:52AM

Stacey says the New Zealand economy continues to hum along and people seem unfazed about continued increases in the official cash rate. In fact he notes a comment from one economist that if rate hikes are going to have any affect they need to by pushed up 300 basis points.

Clearly this isn’t going to happen especially since it is an election year.

Because of the strength of the economy, and partly due to the state of currencies, Stacey is still strong on New Zealand assets.

“We continue to find allure in New Zealand investment asset – particularly the NZX’s high dividend listings and especially so with the absence of currency risk when investing locally.

“Our review opted to retain strong New Zealand allocations, but recommend the realisation of recent gains.

“Capture of dividends to cash is one mechanism, but top-cutting may also be necessary for some.” On the fixed interest front investors face a sort of dilemma. With local bonds underperforming cash, and offshore ones generally having lower yields than New Zealand ones bonds are an “altogether unattractive asset class.”

Stacey notes that many advisers have been tempted by the higher yields offered by capital stock and debentures, but he doesn’t want to go there.

“We find the proposition of to assume risk that trading banks decline altogether unattractive.

“The context of a low yield regime has forced compromise. We have embraced professionally managed, ‘enhanced yield’ securities, incorporating rather more issuer risk, sharemarket correlation, or counterparty risk, than would otherwise be optimal. Reversion to more orthodox, high-quality, direct debt instruments will be an early priority when more normal yields resume,” he says.

« United pushes for tax deductibility of super payments

Sovereign takes regulation bull by the horns »

Special Offers