Russell Investments checks recovery signals

Russell Investments checks recovery signals

16 APRIL 2009 – New Zealand investment managers are looking for the normalising of credit markets and reduced market volatility as leading indicators of a recovery in the financial markets.

Hot on the heels of those two signals is the easing of the business credit crunch says Alister Van der Maas, Russell Investments’ senior manager of investment consulting in New Zealand.

Russell Investments asked investment managers at the end of the first quarter this year for the signals that would indicate to them markets were set for a recovery. Van der Maas says the overall response in many ways mirrors the response of United States managers.

“However, the US managers also viewed the stabilisation of the housing market as more informative than reduced financial market volatility as a signal of recovery.”

Technical measures investment managers say they are watching are:

• a reduction in financial market volatility as measured by the VIX (the Chicago Board Options Exchange Volatility Index)
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• a normalising of credit risk as neared by TED spreads (the difference between three month T-bill interest rates and three month LIBOR)
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Other options given to the managers included (ranked as voted) housing market stabilises (4), worst job losses are behind us (5), consumer outlook improves (6) positive economic growth in sight (7) and stock prices show tentative gains (8).

Russell Investments is a global market leader among manager-of-manager investment firms, advising more than 2,000 clients on more than NZ$1 trillion in assets. More than 40 million individual investors have access to Russell services and products.

The nine NZ investment managers who responded also gave their usual insight to other financial measures checked by Russell’s quarterly Investment Manager Outlook. All the managers said NZ equities were undervalued, but not significantly. Most saw opportunities in better quality stocks, if held for the long term. However, the response to bonds was mixed.

Cash over the next 12 months was not favoured either by the managers and property was also still unpalatable to most.

“The response to property reflects those of their Australian counterparts where 61% were bearish to Australian REITs,” Van der Maas says. “The reality of refinancing difficulties in this highly geared sector remains a risk and this is also likely to be driving the views of NZ managers.”

Looking for some light at the end of the tunnel, most managers felt there could be better news by the end of the third quarter this year and growth would increase – but not by much.

Ends

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