Global shares the place to be: AMP Capital

Economic growth in New Zealand will accelerate in 2011, though the cautious household sector remains a drag, according to AMP Capital Investors.

Thursday, February 10th 2011, 7:03AM

by Benn Bathgate

In an investment briefing AMP Capital outlined its investment strategy and views on the global economy.

AMP Senior economist Bob Cunneen said AMP remains "mildly underweight on New Zealand shares", citing their bias towards global shares for the position.

He said global shares remained undervalued and were "still the place to be."

He said AMP is 3% overweight in global shares offset by a "modest" underweight to fixed income (down by 2%).

Within fixed income, AMP is underweight in bonds against cash.

Cunneen cited rising global bond yields for the decision, saying the yield on 10 year bonds had risen from 2.5% to around 3.7%.

AMP closed its underweight position in the New Zealand dollar over the last quarter in the belief that there are no significant downside risks for the currency in the short term.

Cunneen said the Kiwi was "in a trading range at the moment", where AMP believes it will remain given the conflicting forces in the market.

The company also moved out of global real estate, switching 0.5% into global shares, again citing rising bond yields and the likelihood they would prove to "be a bigger headwind for global REIT than it is for global equities."

AMPs positive stance on shares extends to commodities, with Cunneen citing Asia's "huge surge in food prices," up 30%, as providing a boost for the country's food exporters.

He said the inflationary pressures were proving to be "a problem for Asia, a major benefit for New Zealand."

On the wider economy Cunneen said AMP had identified three key issues; US recovery, European debt and Asian inflation.

He was positive on the US economy, saying the labour market was slowly recovering - previously "the missing link" in US economic recovery.

There was more caution on the problems of sovereign debt in Europe however.

He said the market was still unsure about the ability of the PIGS (Portugal, Ireland, Greece, Spain) to recover, despite bail out packages and government debt reduction plans, and that Spain would be "an important domino" with fears a Spanish debt crisis could spiral to Belgium and Italy.

Asian inflation was largely seen as positive for the New Zealand economy, and AMP believes China's economic growth is set to continue, albeit at a slower rate.

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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