by Paul McBeth
The fund manager has doubled its benchmark exposure to stock markets in emerging nations as recent signs of a recovery in China stoke investors' appetite for high-yielding, or riskier, assets, according to its quarterly strategic outlook.
"Emerging markets have risen 40% from their lows in early March and are up more than 20% for the year to date," said head of investment strategy Keith Poore in the outlook statement. "Continued signs of growth in China, reduced emerging market funding risk, and improved investor sentiment have all played a part in the gains."
AXA has also increased its exposure to international government bonds, with wide credit spreads providing attractive yields in the short-term.
The yield on 10-year Treasury notes advanced 12 basis points to 3.83% on Friday while the two-year note climbed to a yield of 1.23% from 0.96%. The gap between the yields widened to as much as a record 281 basis points.
Poore said Australian equities were attractive, outperforming New Zealand's stock market and predicts Australia is better positioned for a recovery.
Although equity markets in developed nations picked up on the recent optimism the global recession hit its nadir and is on a slow upwards trajectory, they still have downside risks in the near-term, and AXA has reduced its exposure to those markets.
Likewise, it has sold down its holdings in property and infrastructure, domestic bonds, and cash, with returns not expected to pick up for some time.
On the local front, chief economist Bevan Graham said the New Zealand economy will probably remain "mired in recession" for the remainder of 2009. He said the first three months of the year were probably the worst, but doesn't expect a "modest recovery" to start emerging until 2010.
He predicts that while monetary policy can remain low for a long time, "they may not stay this stimulatory for long."
The Reserve Bank will review the official cash rate on Thursday, and economists are divided over whether Governor Alan Bollard will hold rates at 2.5%, or slash a further 25 basis points.
Paul is a staff writer for Good Returns based in Wellington.
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