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Investor confidence takes a big knock

Monday 28th April 2003

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New Zealand investor confidence in future returns has experienced its biggest drop since the terrorist attacks of September 11, 2001, as the war in Iraq resulted in renewed volatility in world share markets, shows the March 2003 ASB Bank Investor Confidence Survey.

Overall confidence dropped 10 percentage points to a net 8% expecting better returns in the year ahead. A reading over zero means investors are more positive than negative overall.

The survey shows that investors are progressively losing confidence in the returns from managed funds and shares, and favouring leaving their money in the bank, or turning to traditional bricks and mortar investments.

Investors expecting managed funds to provide the best returns fell from 14% to 12% this quarter, while those favouring direct shares fell from 9% to 8%. In 2000 confidence in managed fund returns reached a peak of 25%, while direct shares were at a peak of 14%.

For investors with exposure to shares, continual blows from recent global events have the potential to damage investors psyche as much as the 1987 share market crash, believes ASB Bank Investments chief manager Roger Perry.

"Many faithful Kiwi investors have held on through the tech wreck...the events of September 11, and the Enron fallout. Now with the effects of the war in Iraq, they are beginning to wonder what's next."

"For investors with large lump sums to invest, exercising a degree of caution in the current global environment is warranted. But for investors regularly saving towards retirement, continuing to maintain a balanced investment strategy, including some shares, is important. Managed investments remain one of the best ways to achieve a diversified strategy," he says.

Investors' re-emerging confidence in property investment continued this quarter, with the largest proportion of investors (18%) believing residential rental property will provide the best returns (up from 16% last quarter).

Investors are turning to property investment as New Zealand's strong migration flows, and relatively stable interest rates, have continued this year. Pressure on the property market is expected to continue until migration flows abate later this year, or building supply catches up.

For many investors, leaving their money in the bank has become an attractive prospect. The proportion of investors who think bank term deposits will provide the best return was 10%, while another 10% favoured the simple saving account. If these two sectors are combined, then bank investments were the most popular category.

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