Emerging markets interesting opportunity: Brighouse

Arcus, in its latest quarterly investment strategy report, is suggesting investors put more focus on the offshore market as the New Zealand economy’s five year bull-run is coming to an end.

Wednesday, April 27th 2005, 6:50AM

“Rising interest rates are starting to bite and economic growth has already slowed down to 2.5%,” Arcus chief investment officer Mark Brighouse says.

Already the investment environment has started to reflect these changes with the New Zealand sharemarket falling further than international markets since the weakness began in early March.

“Over the coming months the demand from New Zealand households for interest rate sensitive goods and services will slow, as will the demand for other big ticket items linked the housing cycle. These factors need to be taken into account by investors reshaping their portfolios,” Brighouse says.

Offshore markets are looking particularly attractive for their higher returns and the protection they offer against the falling New Zealand dollar.

In its strategy paper Arcus is suggesting investors be overweight in Australasian shares, Australasian property and cash. It has a neutral weighting on international shares, and is underweight in all the other sectors.

With international shares Arcus prefers the non-United States economies, particularly Europe, Japan and emerging markets as they have more attractive growth prospects than the US.

“We see the valuations in emerging markets as one of the most interesting investment opportunities available at present.”

However Brighouse warns that gains in those markets may be tempered in the short term by the corrections brought about by the rise in US interest rates.

Brighouse says the currency historically goes in cycles and early indications are appearing which suggest the New Zealand dollar may have already passed its turning point.

An unexpected recovery of the United States dollar in recent months, indications that the US Federal Reserve will continue to push up interest rates and the shifting sentiment on the NZ economy are all likely to weaken the NZ dollar against the US dollar.

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