Equities picked as place to be

Despite the disruptions in recent times, caused by both local and international natural disasters, New Zealand managers still view equity markets as the place to be with international equities holding favour.

Friday, April 29th 2011, 7:43AM 2 Comments

Russell Investments quartery Investment Manager Outlook (IMO) collects top-line opinions on the direction of markets and wider trends that could impact New Zealand investors.

At the last survey in December 2010, a significant minority of managers considered the NZ equity market to be overvalued. Interestingly, this view weakened this quarter, with fewer managers viewing the local market as overvalued, even with the tragedy of the Christchurch earthquake and the strong recent performance of the New Zealand sharemarket playing out.

Russell's Head of Consulting in New Zealand, Daniel Mussett, said the Christchurch earthquake had impacted on managers' outlook for economic growth in the region, however most managers still anticipated stronger growth for 2011.

"There has been a downgrading in growth expectations with slightly more managers bearish on their outlook. While managers still appear to be unsure of the short to medium term impact of the earthquake, most managers advocate a well-diversified exposure to international markets and they are bullish on these sectors so it's unlikely any recovery in New Zealand will have a material impact on clients' overall portfolios," Mussett said.

International events weigh more heavily on managers' minds
This quarter, the IMO asked managers what factors would weigh most on markets in 2011. Responses showed managers held greater concern for international macro-economic events such as the China growth story and US recovery over home-based concerns, mainly the Christchurch earthquake.

The sustainability of China's growth was marked as a significant watch point for New Zealand investors, receiving managers' highest likelihood rating to weigh on markets this year. This response from managers correlated strongly with the results of the Australian IMO, with a view, at least by one New Zealand investment manager that any potential fallout in China will likely occur in commodity rather than equity markets.

Managers also harboured concerns for the sluggish US recovery and, in particular, the impact on the market if or when the Federal Reserve attempts to unwind its programme of monetary expansion.

Bears out on Kiwi
At the time of the survey, the NZ dollar was touching 76 US cents with managers slightly bearish. Mussett said this compared to responses from Australian managers who have become increasingly more bearish over recent quarters.

"New Zealand managers were again more bearish than bullish towards the Kiwi, but since we conducted the survey the NZ dollar has risen closer to 81 US cents. This will be an interesting point to follow in the next quarter as we wait to see how local and global events play on manager sentiment towards the currency," Mussett said.

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Comments from our readers

On 29 April 2011 at 7:00 pm Collin said:

The funny about the survey is this: Russell have published heaps of research over the years claiming fund managers do not add value from asset allocation. With that in mind how can their IMO which essentially covers asset allocation views be of any use to investors given Russell don't believe managers can do this successfully.

On 30 April 2011 at 12:35 pm Alan. said:

This is the stuff we want. What are the top managers current opinions concerning assets & allocations & what are they thinking & doing?