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Short term outlook for shares lowered

Investment managers have marked back their return expectations for New Zealand and international shares.

Friday, August 6th 1999, 12:00AM

by Philip Macalister

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Investment managers have, for the second consecutive quarter, significantly lowered their expected investment forecasts for New Zealand equities, according to the latest Aon survey of managers.

Over the next 12 months the eight managers surveyed expect, on average, that New Zealand shares will return 11.9 per cent before tax and expenses. This is a 2.4 per cent fall since the last survey three months ago and a 6.2 per cent drop in the past six months

Asset class

Expected average return over next 12 months

Change from last quarter

Expected five year returns

Cash

4.9

+0.1

5.5

Fixed interest

5.7

+0.5

6.1

Property

8.4

+0.6

8.8

Equities

11.9

-2.4

12.6

Intl fixed interest

5.3

+0.3

6.0

Intl equities

7.1

-0.5

11.9

Inflation rate

1.8

+0.2

1.9

Source: Aon Consulting

The flip side of their forecast is rosier though. The managers reckon that local shares will return 12.6 per cent over the next five years to June 2004. This is a 1.2 per cent increase in the past three months.

The more negative sentiment for shares is reflected in a strategy change recently taken by AMP Asset Management in its balanced funds. AMPAM has moved from a neutral to an underweight equities position by reducing the extent of its over weight position to NZ shares.

International equities is the only other sector in the Aon survey to receive a downgrading by managers. Here managers have knocked just 0.5 per cent off the sector's expected return, lowering it to 7.1 per cent.

The overall tone of the latest survey though is more positive than three months ago. Back then all the asset classes, except cash were given a downgrading, while this time just shares have been marked back.

When it comes to the long-term (five year) outlook managers haven't altered their expectations significantly. Every asset class, except shares, has stayed within 0.2 per cent of previous expectations. Shares on the other hand have been re-rated upwards, the opposite to the short-term outlook. The return expectations for NZ and global equities have risen 1.2 per cent and 1 per cent to 12.6 per cent and 11.9 per cent respectively.

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