Global debt worries focus for investment managers

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Global debt worries in focus for NZ investment managers

March 30 2010 – New Zealand’s key investment managers are keeping a wary eye on sovereign debt as the list of countries with debt worries grows.

Russell Investments’ latest Investment Manager Outlook (IMO) asked New Zealand’s key investment managers what impact they expected sovereign risk would have on global fixed interest portfolios over the next 12 months. While just over half thought the risk is minimal, the rest are expecting a noticeable negative impact.

And for the second quarter in succession, all managers remain extremely bearish on both New Zealand and international bonds. This is consistent with the findings of Russell’s IMOs in Australia and the United States.

However, Russell’s head of consulting in New Zealand, Alister Van der Maas, says the question investors must constantly ask themselves is to what extent this negative sentiment is already reflected in bond prices.

The Russell survey, one of a series that the global investment management consulting business conducts throughout the world, was done in New Zealand in the second week of March eight key investment responded.

Asked about equities, the majority of the investment managers say the New Zealand equity market is undervalued. Mr Van der Maas says positive surprises in the recent reporting season seem to have led to the conclusion by some managers that earnings growth is likely to exceed expectations for some NZX stocks.

“Interestingly, this mirrors the Australian managers where the generally positive company reporting season appears to have given rise to a heightened perception by their managers of underlying worth in that market,” he says.

New Zealand managers are, however, more bullish to international equities than their counterparts in Australia and the US.

One significant change this quarter is in NZ managers’ attitude to the NZ dollar. The NZ managers are strongly bearish. Mr Van der Maas says this may reflect the different interest rate policies being adopted by the respective central banks. The RBA has twice increased its interest rate, while the RBNZ has held its official cash rate at 2.5% since April last year.

All managers are expecting stronger economic growth in New Zealand. Despite their negativity toward the dollar, some expect it to come out of the export sector as New Zealand cashes in on rebounds in its major trading partners’ economies.

ENDS

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