Equities the asset class to watch

Equities are currently the asset class to watch - with the real value to be found offshore rather than closer to home, according to AMP Capital Investors head of investment strategy Jason Wong.

Tuesday, July 28th 2009, 6:31AM

by Sonia Speedy

Wong said shares continue to be very attractive in comparison to cash and bonds. However, New Zealand equities remained a "low beta" market, with much more upside potential in global equities.

"Domestically, the New Zealand sharemarket has already bounced off its lows, reflecting expectations of better growth ahead and this positive trend should continue. However, New Zealand shares are relatively expensive compared to global counterparts and therefore offer less upside in a world of better return opportunities," Wong said.

This was because New Zealand had not felt the recession as severely as some nations around the globe and therefore it did not offer as much value. AMP Capital currently holds overweight portfolio positions particularly in global equities (around 5%), as well as in domestic fixed interest, property and foreign currency. It is neutral on New Zealand equities and underweight cash, global fixed interest and global property.

In the near term, bond yields could remain in the trading range, with the tough economic environment and low short rates limiting the upside, Wong said.

"Looking further out we start to get a bit concerned about the bond market," he said.

He suggested it would be keeping "a tilt" towards global equities for a while, potentially the next six to 12 months if the market continued on a similar course.

At a macroeconomic level, Wong said global economies were in a bottoming out phase with economic recovery expected through to the end of next year. He anticipated the recovery may be "W-like" in shape and said the sustainability of the economic recovery was the key question.

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