Managers cautions on NZ shares

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New Zealand’s investment managers are cautious about the outlook for New Zealand shares and tend to favour international equities.

Friday, February 9th 2007, 7:02AM

This is one of the key findings from a survey of New Zealand investment mangers conducted by Russell Investment Group.

Every quarter Russell surveys investment decision makers in New Zealand and in international markets to collect investment managers’ opinions about market direction, favoured sectors/styles, and trends on the horizon.

“Our objective is to generate a meaningful snapshot of investment manager sentiment each quarter and track that over time, both within New Zealand and globally,” says Russell’s Head of Consulting, David Iverson.

With regard to the surveys of offshore managers, the Japanese and the US managers are extremely bullish about their own markets. When it comes to the global view, the offshore managers are markedly bullish on the 2007 equities outlook.

Likewise New Zealand managers are bullish on international equities but “the prevailing sentiment for New Zealand equities is bearish. This theme is born out with most of the managers believing the market is overvalued at current levels.

“Some managers believe that while the New Zealand equities market offers poor value it could still be supported by M&A and private equity flows,” Iverson says.

Key findings:

• The survey of eight investment managers found more than 50% to be bullish on the 2007 outlook for international equities. In contrast, managers are more cautious about the outlook for New Zealand shares.
• The prevailing sentiment for NZ equities is bearish (38%) rather than bullish (13%) for performance in 2007. This theme continues in NZ sharemarket valuations, with 75% of managers judging the market “overvalued” at current levels and 25% “fairly valued”.
  - NZ managers expect interest-sensitive sectors and exporters to struggle in the face of higher interest rates and a high NZ dollar.
  - Even though the NZ equities market offers poor value, the strong merger and acquisition and private equity flows are expected to support the market.
  - In general, international equities markets are favoured over NZ equities. The new tax rules are seen as benefiting the NZ market at the margin.
• Managers are now significantly bearish (50%) on NZ bonds, as well as the international bonds (50%) and bullish on cash (38%).
  - Bond fundamentals are not as attractive as equities and managers’ outlook for domestic and international bonds is poor.
• Managers are bearish overall on NZ listed property trusts with 50% expressing a negative outlook towards the sector and 25% a bullish outlook.

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