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Optimism Shown by Investors in Changeable Market

14 July 2006

Embargoed Until 6am, 17 July 2006

ASB Investor Confidence Report

Optimism Shown by Investors in Changeable Market

Investors continue to show a resilient attitude despite concerns with some asset classes, according to the latest quarterly ASB Investor Confidence report.

When asked: Do you expect your net return from investments this year to be better or worse than last year?

Overall investor confidence rose in the second quarter of 2006, up seven points to a net 16 percent. The main cause for this net rise in confidence was the number of people changing their outlook from expecting investments to be worse than last year (down from 20 percent to 14 percent) to the same as last year (up from 39 percent to 43 percent). The percentage of those that expected better returns rose one point to 30 percent.

“In general, people are still relatively optimistic about their investment returns,” said James Mitchell, Head of Relationship Banking and Financial Services, ASB. “In the last year confidence levels have been lower than those seen over the previous two to three years when the property boom was at its height. However, fears of any sudden market changes seem to have past and investors appear to believe there is still potential to at least maintain investment returns.”

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

Although residential rental property remains the highest ranked asset class, confidence through the quarter was volatile, ending down one point to 19 percent. In the final month of the quarter (June) confidence in residential rental property actually dropped to 16 percent, while bank saving accounts rose to the same level. This is the first time confidence in an asset class has been equal to that of residential rental property since the third quarter of 2002.

“Given market dynamics it is not surprising that confidence in residential rental property and managed funds both dropped this quarter, while bank accounts and term deposits rose,” said James. ”This change is in line with the decelerating housing market and weaker equity performance, and high deposit rates for savings products.

“Investors seem to have factored overseas news including inflation rates and oil prices into confidence levels in managed funds, while local issues including Telecom’s ongoing problems don’t appear to have impacted yet on investor confidence in shares.“

When splitting investors by region and asking them what investment gives the best return between residential rental property and managed funds, regional variances in confidence were highlighted.

Residential rental property continues to be ranked higher than managed funds in the top half of the North Island – 21 percent versus nine percent. In the lower North Island the trend from the first quarter of 2006 continued with managed funds ranked higher than rental property, although confidence in both dropped to 16 percent and 13 percent respectively. Confidence in the South Island continues to be volatile with residential rental property moving above managed funds, having fallen behind last quarter.

“Since late 2002 residential rental property has been king in the top of the North Island, but across the rest of the country managed funds are viewed far more positively,” says James. “The surge in confidence in managed funds in the lower North Island and South Island last quarter has been tempered this quarter, but these areas continue to a willingness to invest in something other than bricks and mortar.”

When asked: How confident are you in your current main investment?

Results when asking people about confidence in their current main investment varied this quarter, with some significant changes in certain investment types.

Confidence amongst those with shares as their main investment jumped from 25 percent to 58 percent, to become the highest ranked investment type, while residential rental property dropped from 60 percent to 53 percent.

“When asking people about confidence in their main investment there can often be big changes from quarter to quarter,” says James. “A single piece of market news can be enough to change people’s confidence levels, which is particularly true when looking at managed funds. The more gradual drop in confidence for those with residential rental property as their main investment is in line with the slowdown the market is experiencing.”


Note: Results Graphs Follow

The ASB Quarterly Investor Confidence Survey is a nationwide survey, which has been undertaken every quarter since May 1998. A sample of this size has a maximum margin of error of ±3.65 at 95% confidence. There was a sample of 720 respondents.

See... Quarterly Investor Confidence Survey Results Graphs

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