Recession not seen for NZ

Recession not seen for NZ

Most investment managers forecast economic slowdown and bearish NZ sharemarket

AUCKLAND 09 April, 2008 – New Zealand investment managers remain optimistic New Zealand is not heading for a recession a survey by Russell Investment Group reveals.

Russell’s March quarter Investment Manager Outlook (IMO) reports 70% of managers surveyed toward the end of March forecast lower growth for the next 12 months, but not recession.

Recession is generally defined as occurring when a country’s gross domestic product (GDP) declines over two or more successive quarters, or in plain terms there is no real economic growth over six months or more.

However, 20% of managers do think recession is imminent. The remainder think growth will remain about the same (GDP was 1% for the December quarter).

Russell, which launched its first multi-manager funds in 1980, advises clients on more than NZ$3 trillion in assets and delivers investment programmes to more than 2000 clients in 44 countries. Russell manages around NZ$277 billion is assets in a variety of multi-manager funds world-wide.

Alister van der Maas, a senior consultant for Russell in New Zealand, says most of the 10 investment managers who responded to the IMO now view the NZ market as fairly valued - in contrast to June last year when most thought it was overvalued. Despite this, 40% remain bearish on NZ equities.

“Some managers expect a further decline after the next round of earnings announcements in August,” he says.

The survey shows no indication of significant changes being made to most NZ managers’ portfolios, although a few have underweighted NZ equities and global equities reflecting the bearish sentiment in that sector of the market.

Managers were also mostly bearish on NZ bonds and international bonds.

“This is a little unexpected given that investors are looking for safe and less risky investment,” van der Maas says.

“The blame for this is likely to be found in the worsening liquidity with it being increasingly difficult to transact in parts of this market.”

While the majority of managers hold a neutral view on investing in NZ cash, 60% are strongly bearish on the NZ-US dollar exchange rate. Six out of the 10 expect the NZD to fall relative to the USD.

One asset class that has investment managers evenly split is NZ property. Van der Maas says the even division between bulls and bears is interesting in that it contrasts with the bearish views that have generally been reported.

The IMO reports that the General Election at the end of this year, what happens to the Reserve Bank’s official cash rate and even the value of the NZD was not the major influence on what managers did with their portfolios. Global macroeconomics is the key factor.

“One growth manager commented they continue to look for growth stocks with good earnings that are not at risk from what is happening in the volatile markets,” van der Maas says.

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