Market’s not bottomed out yet – Tower

Valuations of equity investments are the lowest they have been for a long time – but that does not mean it is time to swing back into the market, says Tower.

Friday, February 27th 2009, 5:00AM

by Rob Hosking

Prices are “about the best they’ve been for a long time – around 15 years,” the company’s head of strategy Sean Newman told a Tower Roadshow in Wellington.

Based on those, “we would probably be buying equities with our ears pinned back at the moment,” he says.

“But the risk is still too great.”

The company is still overweight in defensive assets and likely to remain so for a while.

Head of equities Paul Robertshawe says Tower is overweight in assets such as Sky City, Delegats, Contact – “which didn’t do so well for us this quarter” and firms where they see a “compelling value” such as Pumpkin Patch and Mainfreight.

It remains underweight in speciality retail firms, financials and businesses it calls “expensive defensives” – Auckland International Airport and Ryman Healthcare. Other underweights he mentions are Telecom and Vector, which carry large “regulatory risks” to their business model.

There are other positive signs as well as valuation signals, he says.

“New Zealand has had five quarters of recession and the average recession in New Zealand is three quarters.

The currency adjustment in New Zealand has happened in relatively orderly fashion and consumer cash flow has improved with interest rate cuts and tax cuts.

The downsides are the global financial crisis is still a long way from being fixed, he says and the world economy is still firmly in recession.

The other is consumer deleveraging, which will take time and which is likely to be further hindered by rising unemployment – “the big bogeyman”.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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