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Report Shows Investors Expect a Bumper 2005

Report Shows Investors Expect a Bumper 2005

Statement made by James Mitchell, Head Of Relationship Banking and Financial Services, ASB Bank

For the third consecutive quarter New Zealand investors remain optimistic with regards to their investments, according to ASB Bank Investor Confidence report for the fourth quarter of 2004.

When asked: Do you expect your net return from investments this year to be better or worse than last year? A net 21% of those surveyed expect the net return from their investments to be better this year than last year. This level of expectation remains well above the average expectation reported over the six years prior to 2004. Even more remarkable, this net expectation of better returns comes after a year of high returns from a cross section of asset classes: NZ shares as measured by the NZX50 up 25%, commercial property as measured by the Mercer Unlisted Property Index up over 14% and the average residential house prices rising by over 10%.

“Expecting better returns than these is truly optimistic!” says James Mitchell. “However, a high level of confidence is appropriate if one takes these responses less literally and treats them as a measure of general confidence in investment markets. The economic framework in place in New Zealand these days is structured for growth. The economy has done well of late. It should grow strongly over the next 5-10 years. A high level of confidence is unsurprising.”

Expectations of higher returns in 2005 were greatest amongst those whose main investment was shares (a net 42%), managed funds (33%) or a small business (32%). Slipping in expectations were those with residential rental property as their main investment (a net 21% expecting greater returns, down from 28% in the September quarter).

When asked: What type of investment gives the best return? Ask a more general question about which investment is best and the above ranking changes. Residential rental investors may be slipping in terms of their expectations for the next 12 months but they are even more confident than in the seven years of this survey that residential rentals offer the best return: 75% of those whose main investment is residential rental properties rate this asset class as best. In contrast – and in spite of higher near-term expectations – those with shares and managed funds as their main investments were less inclined to rate these asset classes as best in the December quarter (50% and 35% respectively). Likewise, in spite of higher interest rates now, confidence in Term Deposits (45%) had been marked down by those holding these as their main investment.

“It seems the recent strong run in the housing market has influenced people’s perceptions,” says James. “There was a time, though, when shares and managed funds were considered best. Given the returns reported lately it is only a matter of time until people come to rate these classes as best once more.”

For the rest of the country and across all investors surveyed, 25% rate residential rental as best and 11% - the next highest proportion – rate managed funds as best with the difference widening over 2004. But in the lower North Island the relative proportions are 19% and 15% and the difference is narrower now than a year ago.

“By their very nature markets are volatile and they will go in and out of vogue. The prudent approach remains to have a long-term strategy and to seek out the benefits of a diversified portfolio.

“New Zealand investors remain optimistic that the short term will be a positive and profitable one. Such confidence is welcome. So too are high returns. But as the long-term investor knows a considered approach is necessary, even in the good times.”

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