Equities still finding favour over bonds

Equities still finding favour over bonds

AUCKLAND, July 1, 2010 ¬¬– New Zealand investment managers remain fairly united that growth assets (equities) rather than income assets (bonds) are where investment opportunities will be found over the next 12 months.

Russell Investments’ latest New Zealand Investment Manager Outlook survey shows opinions have not changed markedly since March and the New Zealand managers are in tune with their colleagues in Australia and the United States.

NZ managers consider domestic equities to be fairly valued, although a recent market correction provides some opportunities. However, they indicate international equities may provide even greater opportunities for return during the next 12 months. That’s a view shared by their colleagues in Australia and the United States according to Russell™s surveys in those countries.

It is a different story when it comes to bonds. Both New Zealand and international bonds remain out of favour with the seven key managers who responded, which is likely to be a reflection of general concerns around sovereign debt.

The survey, conducted in the second week of June, found the stronger terms of trade and improving economic growth among New Zealand’s trading partners are expected to continue to help the economy, although the recovery is likely to continue to be muted.

Looking at the New Zealand dollar, there has been a change of appetite. While in Russell’s March survey found the managers were all bearish to the dollar, this time the recent 25 basis point rise in the Reserve Bank of New Zealand’s Official Cash Rate (OCR) and improved gross domestic product (GDP) figures appears to have sweetened their mood.

In Russell’s survey of Australia investment managers a question pertinent to that market was asked: what did the managers think would be the effect of the Australian Government’s proposed Resource Super Profits Tax on the longer-term growth of the mining sector? Four out of five managers think the effect would be negative.

One interesting response to the Australian survey of special relevance to New Zealand is the managers’ reaction to speculation that Australian banks may be subjected to side-effects from sovereign debt concerns in Europe. While the majority of managers were bullish to the financial equities sector in the prior quarter, that enthusiasm wanes to 36% this survey.

In the US survey, manager sentiment to cash and US Treasuries remains bearish, while equities, especially US large cap and emerging markets, are more attractive. The US equity market was believed to be undervalued by 47% of managers at the time of the survey.
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About Russell Investments

Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisers and individuals in more than 40 countries. Over the course of its history, Russell’s innovations have come to define many of the practices that are standard in the investment world today, and have earned the company a reputation for excellence and leadership.

Through a unique combination of wide-ranging and inter-linked businesses, Russell delivers financial products, services and advice. A pioneer, Russell began its strategic pension fund consulting business in 1969 and today is trusted by many well-known worldwide institutions for investment advice. The firm has US$179.4 billion in assets under management (as of 31/03/10) in its investment funds, retirement products, and institutional funds, and is well recognised for its depth of research and quality of manager selection. Russell offers a comprehensive range of implementation services that helps institutional clients maximise their assets. The Russell Indexes calculates over 50,000 benchmarks daily covering 65 countries and more than 10,000 securities.

Russell is headquartered in Tacoma, Washington, USA with offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Seoul, Singapore, Sydney, Tokyo and Toronto. For more information about how Russell helps to improve financial security for people, visit us at www.russell.nz

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