by Benn Bathgate
Speaking at the Tower quarterly media briefing Stubbs said inflation would be the dominant theme shaping market returns over the next 12 months.
Tower Asset Management fixed interest manager Andrew Lance was more emphatic on the issue of inflation.
"Inflation is clearly here. We're living in a world of rising inflation so we've positioned our portfolios for that," he said.
He also outlined how Tower was responding in relation to the $4 billion in KiwiSaver money it invests.
"We've increased our weighting in commercial property, we have reduced our weighting in cash because interest rates are still so low short term, and we've increased our weighting in short term fixed interest. We remain neutral on equities. We're getting increasingly nervous on valuations but we're still hanging in there. We're preparing our portfolios for inflation."
He said Tower was "becoming more risk averse and more inflation aware and conscious."
Stubbs said the inflation threat meant that for investors, "We do not think you should be having long-term fixed-rate investments."
He said that while Governments and Central Banks have kept interest rates low so far to promote growth and jobs, debt pressures would soon have to be tackled by rising inflation.
"We think the majority of western nations are going to chose to inflate their way out of debt problems, and that's going to be bad news for fixed interest investors and very good news for people who own houses with mortgages."
While mortgage holders look to be the big winners in Tower's view - Stubbs described inflation as "the homeowner's best long term friend" - Stubbs was also positive on the wider economy.
"There's almost a wall of money about to arrive in New Zealand. The reinsurers will be paying out for the Christchurch earthquake but we also have exceptionally strong export markets."
He said the country's export sector, particularly soft commodities such as dairy, lamb and beef, was "firing on all cylinders."
Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz
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