NZ fund managers cautious after volatility

NZ fund managers cautious after volatility

Domestic growth slowing

AUCKLAND, October, 2007 – New Zealand funds managers are forecasting slowing domestic growth, with two going as far as to predict a recession.

The pessimism of the majority of funds managers is revealed in the New Zealand Investment Manager Outlook, a survey conducted quarterly by Russell Investment Group. The survey is a temperature dip of key fund managers’ opinions on investment prospects for six asset classes – NZ property, NZ cash, NZ bonds, NZ equities, international equities and international bonds – and the NZ$/US$ rate

For three out of the six asset classes the majority of managers expressed a neutral opinion. NZ bonds and NZ cash were two that they found particularly difficult on which to take a stance.

The majority of the managers were also bearish or neutral on the outlook for the NZ$-US$ rate. But two managers bucked the trend and declared they were bullish. This may be attributable to timing though, as the survey was conducted mid-September during the time the US Federal Reserve cut its federal funds rate 50 basis points to 4.75%. Since then the appetite for carry trades has returned and the kiwi has staged a rally.

However, none of the top 10 managers that responded thought the NZ equities market was a hot prospect for growth. While half thought the domestic market was now fairly valued (compared with none in the June survey), the majority did not think the first investment flows from KiwiSaver would boost the NZX. International equities would show stronger growth over the next 12 months, they said.

Australians back own equities

That’s in contrast to Australian fund managers who were happy to back their local market. Of the 40 fund managers that responded to Russell’s IMO there, the majority upgraded local equities and downgraded their views on global equities. The number of managers who thought the local market was undervalued rose to a record 15%.

Australian managers shows strong preference in equities for materials (61% bullish), energy (57% bullish) and healthcare (50% bullish), while financials and industrials were less favoured than previously.

US managers remain firm

US funds managers are similarly bullish for their own patch. Russell’s IMO in that market saw 340 investment, large and small-cap equity and fixed income managers respond late August –early September. At that time 28% thought US equity markets were undervalued and basic attitudes about the markets were even more positive than the prior quarter. Most managers favoured large cap stocks with a penchant for those with a global footprint. Technology stocks got a big tick too with three out of four managers prepared to say they are bullish on this sector.

Corporate bonds and US Treasuries were also popular, but it was considered too early to say whether this was a paradigm shift to fixed interest or merely a temporary flight to safety. Ends

About the IMO: The Investment Manager Outlook is intended to generate a meaningful snapshot of investment manager sentiment. Every quarter Russell surveys senior level investment decision makers in the US, Australia, Canada, Japan and New Zealand to collect their top line opinions about the direction of the markets, sectors/styles to watch, and trends on the horizon that could impact investment strategy. The results for each market are collated and analysed by a senior Russell investment professional.

Three of the four questions posed to investment managers are repeated each quarter, so that results can be measured over time. The poll also includes one topical question that changes each quarter.

In New Zealand we review the data collected from New Zealand managers each quarter and provide an analysis from a senior consultant. Because of the size and influence of the US market and the close proximity of the Australian market we also include a summary their key findings. The finished result is the Russell New Zealand Investment Manager Outlook.

About Russell Investment Group: Russell is one of the world's leading investment services firms, providing investment management, advisory, and diversified funds to clients in 44 countries. Today, more than NZ$280 billion is invested in Russell funds globally.
Russell is also one of the world's largest retirement plan consultants, advising clients on the investment of more than NZ$3.5 trillion in assets. In New Zealand it advises on over NZ$13 billion for institutional investors including the National Provident Fund, Earthquake Commission and the ASB Community Trust.

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