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Investors more cautious about future returns

Monday 25th July 2005

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Investors still consider residential property is the asset which is likely to give them their best returns, well ahead of bank saving accounts and term deposits, managed funds and shares.

In the latest ASB Investor Confidence survey 21% of respondents expected residential rental property to provide the best return over an indeterminate horizon.

“Whilst residential rental property did drop (since the previous survey), it remains very highly regarded by investors,” ASB Bank head of relationship banking and financial services James Mitchell says.

Bank saving accounts and term deposits came in second, although down 2% to 13% (down 2% and 1% respectively) ahead of managed investments 10% (down 2%) and shares 6% (down from 7%), which both continue recent downward trends.

“It remains surprising to see such a large gap between people's perceptions of rental housing and shares, especially given that the NZX50 was up 6.8% over the June quarter,” Mitchell says.

“Global shares have also been performing well in foreign currency terms over the last couple of years, and for those who hedged against a rising New Zealand dollar. The likelihood that the New Zealand dollar will fall over the next few years should add to the appeal of overseas equities on an unhedged basis also.

Mitchell says banks are using different techniques to attract business, and the bank deposit market has also been sparked by recent activity.

“Bank deposits are vitally important for banks and a host of new savings products have been launched over the last few months, promising high rates of interest. This, when matched with dropping confidence in returns from property and shares, has seen bank deposits maintain a high ranking by survey respondents.”

Overall investment confidence decreased significantly in this quarter with a net 10% (down 14%) of those surveyed expecting the net return from their investments to be better this year than last year. This is the lowest level of confidence since the second quarter of 2003.

“The latest results point to a general cautiousness amongst investors, who are realistic about their chances of improving on what have been generally good returns over the last few years across most asset classes,” Mitchell says.

“While the previous report showed Investor Confidence at record levels, there appears to be a realisation amongst investors that their expectations of even greater returns in the year ahead may be too ambitious.

He says the main reason for the drop in confidence was predominantly that people who had previously stated they expected their returns to get better, were now saying they expected their returns to be the same. The number of people who felt their returns would be worse only rose slightly.

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