Caton, who is touring the country in a roadshow hosted by Westpac, told investors in Wellington that emerging markets still offered the best outlook in the medium-term as developing nations continue to grow more rapidly than their developed counterparts. He is also confident of a pick-up in the U.S. economy this year, saying the world's largest economy probably came out of recession in July amid a pick-up in its housing market.
"The developing world is where interesting growth is going to be," Caton said. "The U.S. and emerging Asia are doing better than elsewhere."
He said sharemarkets still have prospects to grow this year, though they are no longer cheap like they were last year.
New Zealand will continue to benefit from its trading relationship and close ties with Australia, after the so-called ‘lucky country' avoided recession and was the "only developed nation to raise exports last year."
The theme for the year will be one of rising interest rates as the year progresses, Caton said. Though he said he is unsure as to whether the Reserve Bank of New Zealand will begin hiking rates in June, he pointed to the central bank's own track of the 90-day bank bill as the indication that Governor Alan Bollard will definitely move in the second half of the year and progressively raise the official cash rate to around 5% in 2011.
Caton said the kiwi dollar is currently above fair value after its impressive gains last year, and he predicts it will run down to about 68 U.S. cents by June, falling to 66 cents by the end of the year.
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