Wednesday 19th October 2005
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He notes that his expected 6.5% return target for the year ended June 2006 was all but achieved by the Top 50 index in the September quarter when it gained 6.4%.
"Are we being unduly harsh with this approach? We don't believe so," Doyle says in a report.
Certainly, his firm's view of the economic outlook has deteriorated. It has lowered its expectation of how much the economy will grow in 2006 from 2.1% to 1.5% and it's now likely the Reserve Bank will hike rates again.
The firm also thinks the economy is now far more vulnerable to unexpected shocks.
Doyle also believes New Zealand shares are significantly over-valued at current levels. "The lack of valuation cushion combined with a poor macro outlook suggests risk to our return target is modestly to the downside."
New Zealand shares are still supported by high yields - Doyle is picking a 5.1% prospective cash yield, although that reflects a structural increase in payout ratios. "Any hit to earnings growth will flow straight through to dividend yields."
Those investors who want to stay in New Zealand shares should stick to either a defensive or ultra-defensive strategy, avoiding cyclical stocks because of the risk to earnings and margins over the next 12 months, he says.
Among stocks Goldman Sachs rates worth buying at the moment are Auckland International Airport, Axa, Contact Energy, Fisher & Paykel Healthcare, Freightways, Guinness Peat Group, Kiwi Income Property Trust and Mainfreight. It is also recommending Macquarie Goodman Property Trust, CanWest MediaWorks, Promina and Waste Management.
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