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AMP Capital shuns bonds and equities for cash

Wednesday 28th July 2010

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AMP Capital Investors is holding more cash than normal after a turbulent quarter raised the prospect of a double-dip recession.

The private investor, which manages $11 billion of New Zealand assets, is 2% over-weight in its cash holding after the June quarter, with ongoing uncertainty in global markets keeping investors cautious.  

Guy Elliffe, head of equities at AMP, said New Zealand stocks were "relatively" attractive at the moment, though merger and acquisition activity was the quietest he'd experienced in his working career. 

Though the dividend yield on equities is better than returns from bonds, their volatility means AMP will keep its cash on the sidelines, head of strategy Jason Wong told a media briefing in Wellington.  

"There are a number of worry factors that need to be worked through over the next 12 months - until then we're not confident on the outlook," Wong said.

"The uncertain outlook makes for a difficult investment environment."  

Wong said if he focused solely on a long-term return then he would shift more cash into stocks, but because the investor has to smooth out volatility, keeping high cash reserves was the best option. 

Cash return 1% net for the fund manager in the June quarter, compared with an 8.9% loss on New Zealand equities, a 10.2% loss on unhedged international stocks and an 11.7% loss on hedged global shares. Local fixed interest made a 3.3% return over the quarter, while global bonds made 4.1% for the investor, while local direct property returned 0.6% and global property reported a loss of 6.8%.  

Wong said the fund manager doesn't subscribe to the double-dip recession scenario, though the return to growth will be tepid.  

New Zealand's recovery had been slow by historical standards, with only two quarters of growth on a per capita basis, Wong said.

Still, the rebalancing away from the non-tradeable sector was taking place as exports, rather than consumer spending, drives the recovery.  

Wong said he expects the Reserve Bank to hike the official cash rate a quarter-point to 3% tomorrow, and predicts Governor Alan Bollard will keep raising interest rates until he gets back to a neutral setting of about 4.5% to 4.75%.

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