Investment managers bullish on equities, bearish on bonds

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New Zealand investment managers are sniffing for equity bargains both here and offshore but have turned their noses at government bonds, a new survey suggests.

The Russell Investments quarterly survey of investment mangers, completed late in June, found nearly 70% of managers were bullish about equities – and none were bearish. The rest were “neutral”.

Alister Van der Maas, senior manager investment consulting for Russell Investments New Zealand, said this was interesting given that equity markets had already significantly rebounded since the troughs of March this year.

“The overall sentiment seems to be that the NZ market remains undervalued,” he said.

The optimism about equity investment was almost mirrored in the survey by the pessimism about cash and bonds, specifically government bonds.

Three-quarters of managers were bearish on New Zealand bonds, compared with only 44% last quarter.

“This is no surprise given the large weighting of the New Zealand bond market to government bonds, a sector of the bond market viewed with pessimism given the significant bond issuance by governments globally,” Mr Van der Maas said.

“Russell’s US survey, for example, found 83% of managers bearish to US Treasuries, while at the same time 66% were bullish to high yield bonds and corporate bonds.”

Asked about economic growth the New Zealand managers predicted another quarter of negative growth before the pain of the recession started to ease.

They also thought the New Zealand dollar was likely to depreciate over the next 12 months and it would fall out of favour with international investors.

Managers were also asked this quarter what they thought would be the long-term inflationary effects of the fiscal and monetary policies implemented by global governments in response to the financial crisis.

The general consensus was there would be moderate inflation over the short term mainly due to a shift in consumer behavior, current low rates of capital utilisation and a reduction in the ability of banks to lend.

But the managers thought there would be higher inflation over the longer term.

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