Monday 11th April 2011 2 Comments
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Inflation is "the 100 pound gorilla in the room" and is set to make its presence felt across the New Zealand economy, according to Tower Investments CEO Sam Stubbs.
Speaking at the Tower quarterly briefing today he said inflation issues would shape the financial markets over the next 12 months and that Tower was positioning its investments accordingly.
The Tower Asset Management fixed interest manager Andrew Lance said he believed the country was already in an inflationary climate, citing his own experience of rising expenses.
"Inflation is clearly here. We're living in a world of rising inflation now so we’ve positioned our portfolios for that," he said.
Tower believes Governments and Central Banks have colluded to keep interest rates low to boost jobs and economic growth, however to deal with debt problems they believe of the two options available - default on debt or use inflation - those who can will opt for inflation.
"We think the majority of the western nations are going to chose to inflate their way out of debt problems," Stubbs said.
"That's going to be bad news for fixed interest investors and very good news for people who own houses with mortgages."
Lance also outlined how Tower had repositioned its $4 billion in KiwiSaver investments.
"We've increased our weighting in commercial property, we have reduced our weighting in cash because interest rates are still so low short term and we've increased our weighting in short term fixed interest."
He said that while Tower was neutral on equities at present, "we're getting increasingly nervous on valuations."
"We're still hanging on in there, but we're preparing our portfolios for inflation."
On the New Zealand economy in general, Lance said Tower was, "more optimistic than the market," citing a number of factors.
"There's almost a wall of money about to arrive in New Zealand. The reinsurers will be paying out for the Christchurch earthquake but we also have exceptionally strong export markets."
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