'Sweet spot' for stock markets over, but still a better bet in 2010: AMP Capital

Tuesday 9th February 2010

The “sweet spot” for stock markets is over, says AMP Capital Investors, though they’re still a better bet than bonds and cash, as policy makers wind down the stimulus measures brought in to fight the worst recession New Zealand’s been in for 18 years.

Though New Zealand’s equity market probably won’t enjoy the 20% gain of 2009, it’s still likely to be the best performing asset class this year, according to Jason Wong, head of investment strategist at AMP Capital Investors.

“The sweet spot for equities is over,” Wong told a media briefing in Wellington today. “We believe that 2010 will be a more challenging year for growth assets, but shares are still likely to outperform the low returns on offer for cash, bonds and property.”

The investment company manages about $11 billion worth of assets in New Zealand and recorded annual returns of just above 20% in its New Zealand equity portfolios in the 12 months through December.

By comparison, there was a 4.4% gain in New Zealand fixed interest and cash.

New Zealand shares are still below value by about 10%, according to AMP’s head of equities Guy Elliffe, who said the local stock market's relative lack of volatility made it a lower-risk investment venue than international equities.

Wong said though there’s some room for bond returns to improve early in the year, this will decline as the Reserve Bank withdraws its monetary policy stimulus around the middle the year.

“New Zealand will be the next one (central bank) to move on interest rates", Wong said. “We believe that will be in the middle of the year, though the current rate is still at an emergency level," he said.

Markets are pricing in 162 basis points of rate hikes over the coming year, according to the Overnight Index Swap curve. That’s down from 200 points when Governor Alan Bollard began paving the way for rate hikes in his official cash rate announcement last month.

AMP’s head of fixed interest, Grant Hassell, said he doubts hikes to the OCR will have much bearing on mortgage rates and interest rate markets, with fixed mortgages already about 300 basis points above the benchmark.

Wong predicts the economy will grow between 3% and 4% this year, as “consumers have started to spend again and are helping a more stable recovery,” he said.

AMP’s biggest gaining asset class in 2009 was its hedged global equity portfolio, which rose 38%, while its unhedged global equities increased 9.2%. Direct investment in New Zealand property slumped 19%, while global property surged 37%.

Wong said AMP’s diversified funds will probably see lower returns than last year, but still achieve a “reasonable” gain in 2010.

AMP’s conservative fund gained 5.8% in the 12 months ended Dec. 31, while its balanced fund grew 11% and its growth fund surged 15%.

Businesswire.co.nz

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