NZ emerging from economic winter: Russell

New Zealand's fund managers are predicting longer-term strength in the New Zealand dollar and stronger economic growth as the year progresses.

Wednesday, July 27th 2011, 8:00AM

Russell Investments' quarterly survey of fund managers shows there is improving sentiment regarding New Zealand's economic prospects.

That feeling doesn't necessarily extend to the tourism and manufacturing sectors with historically high dollar values likely to create headwinds for these key sectors of the New Zealand economy.

The high Kiwi dollar value against its US counterpart continues to be driven by the change in outlook for global commodity prices. While the basket of New Zealand produced commodities took a recent dip the overall outlook is predicted by New Zealand fund managers to keep Kiwi dollar values in a historically higher range.

Russell New Zealand's Head of Consulting Daniel Mussett says the survey has shown a firming of the view that the New Zealand dollar will stay at higher levels than have been the norm in the past.

"That's the view of about 80% of fund managers we regularly poll for our survey while the consensus view is that we are in for a period of stronger economic growth. We might finally be coming out of our economic winter," says Mr Mussett.

"The only caution on that will be what happens in Greece and the response of European markets to further problems in the already distressed Greek economy. But that may merely delay a brighter economic outlook."

Mussett said the optimism among New Zealand fund managers was driven by prospects of the Canterbury rebuild, Rugby World Cup and the expectation by that commodity prices would remain high and demand for commodities would remain strong.

However, Mussett said the survey pointed to a noticeable decline in the preference for growth assets.

"Over the past two years managers here in New Zealand and overseas have been bullish on equities and bearish towards income assets such as bonds. New Zealand is following international trends with fund managers' appetite for equities becoming less pronounced. In Australia that bullish sentiment has dropped from 88% to 57% while in the US the decline has been more moderate with a drop from 70% to 60%."

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