Survey shows investor optimism at record level

A record level of investors expect better returns this year than last year, after near-70 percent gains from shares and property in recent years.

Monday, April 18th 2005, 10:45AM

The same peak was reached at the end of 2003, but ASB head of relationship banking James Mitchell said of the latest rise in confidence: "We believe this to be somewhat optimistic."

The high confidence levels reflected strong returns from property and shares -- both up about 70% in recent years, he said -- and confidence in the economy.

But shares are lowly rated in the survey and going further out of favour.

Term deposits are gaining popularity, especially with higher interest rates, reaching about 7% in some cases.

Investors are putting their money into term deposits rather than managed funds, superannuation or life insurance, according to figures compiled by a bank interest rate tracking company.

More than $67 billion was invested in bank and non-bank institutions at the end of December, up 12.3% on a year earlier.

Interest.co.nz -- which compiled the data -- said investment in bank term deposits at $55 billion made up more than 80% of this.

Finance company debentures attracted $8.7 billion, up 18.2% on the year earlier.

In contrast, managed funds, life insurance and superannuation invested in New Zealand amounted to $34.2 billion, up just 2.9%.

Share prices have risen 70% in the past couple of years, for the top 50 index, peaking early last month. But since then the index has fallen about 6%, especially knocked by rising interest rates which were also expected by some economists to reduce average house prices by 5% or more in the coming year.

Average house prices rose about 12% in the year to March, Quotable Value said. Since 2001, the average house price has risen 67% -- the biggest price rise cycle since 1988. It was driven by low interest rates, strong economic growth and above average net migration. Now interest rates are up sharply, economic growth is expected to slow and migration has slumped.

Despite that, the ASB survey showed rental housing remains the asset class most widely expected to provide the best return -- favoured by 24% of those surveyed.

Second and third ranked are bank saving accounts (15%, well up from 8%) and term deposits (14%, up from 11%).

Shares trailed at just 7t, down from 10%.

« Form of capital gains tax being considered

Sovereign takes regulation bull by the horns »

Special Offers