NZ managers: Hands off the printing presses

Local fund managers agree New Zealand should not follow a number of international economies and print more currency.

Thursday, January 17th 2013, 10:19AM

by Niko Kloeten

Russell Investment’s latest survey of New Zealand’s top managers asked whether the Reserve Bank or Government should look at bringing down the value of the New Zealand dollar through measures such as quantative easing – printing more money.

The answer from the fund managers was a resounding “no”.

“With the New Zealand dollar sitting at 84c last week the perception is that our currency is strong, but the reality is that it more likely reflects weakness of the US dollar,” said Russell’s New Zealand head of consulting, Daniel Mussett.

The managers surveyed agreed the current high exchange rate is hurting New Zealand’s manufacturing base and exporters, but they thought it would be dangerous, if not impossible, to manage our currency through direct intervention.

“Since weak currencies typically characterise poor countries, the sentiment from managers is that it is doubtful you can become rich by making yourself poor,” Mussett said.

The survey also shows managers believe the equity market in New Zealand remains fairly valued following New Zealand’s standout 12-month return of 25% including a return of more than 5% in the last quarter of the 2012 calendar year.

“The majority believe dividend yields support the current valuations and that there may be more upside from cyclical stocks in 2013. They were overshadowed by the strong performance of the more defensive stocks in 2012,” Mussett said.

The survey also found an improvement in sentiment towards the New Zealand economy from the previous quarter, with the majority of managers expecting stronger economic growth over the next 12 months.

“That appears to be in part from the effect of the Christchurch rebuild, the improved data coming out from our trading partners and higher house prices creating a wealth effect leading to increased consumption,” Mussett said.

"However, some managers remain cautious about the speed of the rebuild. One manager considers there is a risk of increased unemployment as businesses continue to adjust to the current environment.”

The survey also showed a continuation of the bearish sentiment managers have towards the bond market with a bullish outlook on equities.

Managers share a view that expectations for company earnings will be exceeded and that there is demand for higher income investments.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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