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Cautiousness in Market - Investor Confidence Drops

22 July 2005


General Cautiousness in Market as Investor Confidence Drops

Confidence amongst New Zealand investors has dropped across most asset classes, according to the ASB Investor Confidence report for the second quarter of 2005.

When asked: Do you expect your net return from investments this year to be better or worse than last year?
Confidence decreased significantly in this quarter with a net 10% (down 14%) of those surveyed expecting the net return from their investments to be better this year than last year. This is the lowest level of confidence since the second quarter of 2003.

“The latest results point to a general cautiousness amongst investors, who are realistic about their chances of improving on what have been generally good returns over the last few years across most asset classes,” says James Mitchell, Head of Relationship Banking and Financial Services at ASB.

“While the previous report showed Investor Confidence at record levels, there appears to be a realisation amongst investors that their expectations of even greater returns in the year ahead may be too ambitious.

“It should be noted that the main reason for the drop in confidence was predominantly that people who had previously stated they expected their returns to get better, were now saying they expected their returns to be the same. The number of people who felt their returns would be worse only rose slightly.”

When asked: What type of investment gives the best return?

Residential rental property remains the asset class that is most widely expected to provide the best return (over an indeterminate horizon), at 21%.

Second equal ranked were bank saving accounts and term deposits on 13% (down 2% and 1% respectively) ahead of managed investments 10% (down 2%) and shares 6% (down from 7%), which both continue recent downward trends.

- More -

“It remains surprising to see such a large gap between people's perceptions of rental housing and shares, especially given that the NZX50 was up 6.8% over the June quarter,” says Mr Mitchell. “Global shares have also been performing well in foreign currency terms over the last couple of years, and for those who hedged against a rising New Zealand dollar. The likelihood that the New Zealand dollar will fall over the next few years should add to the appeal of overseas equities on an unhedged basis also.

“Meanwhile, whilst residential rental property did drop, it remains very highly regarded by investors. In recent months there has been great debate in the media about the property market and the drop is probably indicative of this.”

“While residential property investment continues to tick along and banks use different techniques to attract business, the bank deposit market has also been sparked by recent activity. Bank deposits are vitally important for banks and a host of new savings products have been launched over the last few months, promising high rates of interest. This, when matched with dropping confidence in returns from property and shares, has seen bank deposits maintain a high ranking by survey respondents.”


Results Graph follows.

The ASB Bank Quarterly Investor Confidence Survey is a nationwide survey, which has been undertaken every quarter since May 1998 interviewing a sample of up to 1000 respondents. A sample of this size has a maximum margin of error of ±3.65 at 95% confidence.

Chart 1
Chart 1 shows the difference between the “better” and “worse” figures, giving an overall picture of net investor confidence on a quarterly basis. Overall confidence dropped this reading to +10%.

Click for big version

Chart 2
Chart 2 shows the results when the sample is asked what type of investment gives the best return.

% of total samle who feel this type gives the best return
Click for big version

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