Growth still distant dream for AXA Global Investors

AXA Global Investors (AXA GI) has picked emerging market equities and global bonds as the only short-term bright spots in an otherwise bleak world outlook.

Wednesday, March 11th 2009, 5:00AM

by David Chaplin

In its March 2009 'Quarterly strategic outlook', AXA GI – formerly known as Arcus Investments – says although equity valuations look “increasingly attractive” the prospects for growth assets still appear shaky.

The AXA GI report says the group has “stayed true” to two important indicators in judging the state of world markets - “the state of the US housing market and financial sector credit”.

“While there has been some improvement in the latter, the rate of US house price declines still looks troubling,” the report says.

According to AXA GI, it expected a number of key themes to develop over this year which would determine investor returns “for many years to come”.

As well as a worsening slump in the developed world, AXA GI says other themes include an adjustment of global imbalances, the emergence of deflation or inflation and New Zealand's continued slide into “the bad old days of twin deficits: concurrent fiscal and external deficits”.

The report says emerging markets will recover more quickly from the global crisis because they don't have the same “debt overhang” as most developed countries. Despite the threat of deflation in a handful of countries such as the UK and US, AXA GI says inflation is a more likely scenario, particularly in emerging markets.

The report also supports calls to cancel transfers to the New Zealand Superannuation Fund for a number of years to reduce government debt saying while the equity risk premium might be high enough to justify borrowing to invest “in the midst of a global credit crisis, the priority must be to reduce upward pressure on interest rates”.

“Long-term the answer for the New Zealand economy is to export more. All of our policy efforts and resources must be directed here – and the somewhat broader goal of raising productivity generally,” the AXA GI report says.

“Can we export more? We simply have to. The only other alternative is a future of reduced wealth and lower prosperity.”

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