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Hands Off the Printing Presses Say Investment Managers

News Release

16 January 2013

Final quarter 2012

Hands Off the Printing Presses Say Investment Managers

It doesn’t happen very often but New Zealand’s leading investment managers are in full agreement that New Zealand should not follow a number of other international economies and print more currency.

Russell Investment’s latest survey of New Zealand’s leading investment fund managers sought their expectations for the markets for 2013. It also asked whether the Reserve Bank or Government should look at bringing down the value of the New Zealand dollar through measures such as quantative easing – printing more money.

The answer from the fund managers was a resounding “no”.

“With the New Zealand dollar sitting at 84 cents last week the perception is that our currency is strong, but the reality is that it more likely reflects weakness of the US dollar,” said Russell’s New Zealand Head of Consulting, Daniel Mussett.

“The investment managers we survey every quarter agree the current high exchange rate is hurting our manufacturing base and our exporters. In the short term, that generates a drag on economic growth, with rising unemployment and deterioration in our external accounts.

“However, a number of those managers also consider that it would be dangerous, if not impossible, to manage our currency through direct intervention. Fortunately, good companies and those with a competitive advantage will continue to do well despite the current position of the dollar.

“Since weak currencies typically characterise poor countries, the sentiment from managers is that it is doubtful you can become rich by making yourself poor.”

The survey also shows our investment managers believe the equity market in New Zealand remains fairly valued following New Zealand’s standout 12-month return of 25% including a return of more than 5% in the last quarter of the 2012 calendar year.

“The majority believe dividend yields support the current valuations and that there may be more upside from cyclical stocks in 2013. They were overshadowed by the strong performance of the more defensive stocks in 2012,” says Mr Mussett.

“There was also a marked improvement in sentiment towards the New Zealand economy from the previous quarter, with the majority of managers expecting stronger economic growth over the next 12 months.

“That appears to be in part from the effect of the Christchurch rebuild, the improved data coming out from our trading partners and higher house prices creating a wealth effect leading to increased consumption. However, some managers remain cautious about the speed of the rebuild. One manager considers there is a risk of increased unemployment as businesses continue to adjust to the current environment.”

The survey also showed a continuation of the bearish sentiment managers have towards the bond market with a bullish outlook on equities. Managers share a view that expectations for company earnings will be exceeded and that there is demand for higher income investments.


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