ASB Quarterly Investor Confidence Report
Investors Confident But Increasingly Cautious
New Zealand investors have ended what proved to be another profitable year in a positive mood, according to the latest ASB Investor Confidence report.
When asked: Do you expect your net return from investments this year to be better or worse than last year? (Chart 1)
A net 16% of those surveyed in the December quarter (up 3% from the September quarter) expect the return from their investments to be better this year than last year. While this is below the net 24% reported twelve months earlier, this level of expectation still points to a group of generally optimistic investors.
“Investors seem to be facing 2006 in a similar frame of mind to last year, albeit a bit more cautious,” says Anthony Byett, Chief Economist ASB. “This time last year the warnings were that the high returns of 2004 were unlikely to be repeated. As it was there were double digit benchmark returns for key asset classes such as property and equities.”
The latest dwelling sales figures from REINZ show the median dwelling sale price to be up 13.5% between December 2004 and December 2005. The NZX report their NZX50 benchmark to be up 10.0% for the year. A number of offshore equity markets did even better. These good returns come after reservations widely expressed at the start of the year.
When asked: What type of investment gives the best return? (Chart 2)
Residential rental property remains the asset class that is most widely expected to provide the best return (over an indeterminate horizon), up one percent to 24%.
Term deposits were ranked second on 13% (up 1%). Thanks to the 7% plus rates on offer term deposits had a strong end to the year and look to be closing the gap on residential rental property. Shares were rated third on 10%, followed by managed investments on 9%.
Those in the top of the North Island and South Island continue to prefer residential rental property ahead of managed funds. Those in the lower North Island, who had previously held a more neutral position with the two asset classes had a major reversal in the fourth quarter with a 18% change leading to a 20% preference for residential rental property (from 2%).
When asked: How confident are you in your current main investment?
One of the big changes in the latest ASB Investor Confidence report was amongst those commenting on their main investment. Confidence amongst those with residential rental property as their current main investment decreased 2% to 61%. Conversely, confidence amongst those with equities as their main investment leapt 23 points to 67%.
“A word of caution is still appropriate. This latest report has thrown up some more volatile results than we normally see, perhaps as a result of the confusion between forecasts for future results and current asset performance,” says Mr Byett. “There was also some slippage in confidence over the quarter, a development we will watch closely over 2006.
“With the Reserve Bank’s increases to the cash rate last year and subsequent increases across all lending institutions for mortgages the dominance of residential rental property as the standout preference amongst New Zealand investors may be coming to an end.
“Whether the pundits or the public are correct in 2006 it is clear that in an environment of a slowing economic growth rate and of property and equity markets facing more selling pressure a prudent and cautious approach – and balanced approach – is recommended.”
The ASB 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.