Drop in fixed interest options boosting equities

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A lack of bond issuances has been driving interest in the New Zealand sharemarket, and that is likely to continue, an investment manager says.

Thursday, January 9th 2014, 6:00AM 1 Comment

by Susan Edmunds

Brian Gaynor, executive director of Milford Asset Management, said he expected 2014 to be another good year for New Zealand equities.

It comes after HSBC chief economist Paul Bloxham predicted that New Zealand could be the "rock star" economy of 2014, and BK Asset Management's Kathy Lien identified the kiwi dollar as the "hottest" currency of 2014.

Gaynor is predicting sharemarket growth of 10% to 15%. Last year’s growth was 16.5% and 2012’s was more than 24%.

“I’m reasonably optimistic that it will do over 10% but it will be hard to get to 20%,” he said.

He said it was partly driven by the fact that the number of bond issuances has dropped substantially. There were 300 million last year, the same number as in 2012. “Traditionally bond issuances have been more like two or three billion a year.”

Because of the drop, people were looking for alternative investments, he said.

Many people are still holding a lot of money in their bank accounts. Gaynor said there is $120 billion in bank accounts in New Zealand.

If a small number of those people decided 2014 was the time to put that money to work in the sharemarket, it would make a big difference.

“The sharemarket is only $82 billion… all it would need is a small amount to go from bank accounts to the sharemarket to give the market a boost. The economy is looking good, people are becoming more confident and that has traditionally led the, to look more to riskier investments.”

Investors would not be so tempted to invest offshore because of concerns about the dollar, he said. “If the dollar performs strongly, offshore investments fall in value.”

Last year, the Australian sharemarket delivered a 20.2% return, but Gaynor said New Zealand dollar movements would have reduced that to 3.8% for investors in New Zealand. “Gains were lost to New Zealanders because individuals can’t hedge against currency movements.”

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