by Susan Edmunds
Michael Haddad, principal and senior portfolio manager of Sydney-based PetersMacGregor, said: “I get the sense people are not taking action because the currency has fallen. But we need to take a greater historical perspective. It’s still relatively high. It has fallen but not to the level where it is obviously undervalued… There’s a greater recognition I think in Australia that a lower currency is the new norm and an inevitability. I don’t sense the same yet in New Zealand, hence my concern that people here may defer foreign investment.”
He said increasing global exposure could be reasonable in an appropriately considered asset allocation.
“While we may not naturally feel great about investing in US shares when the NZD is at 63c, recall that in 2003 when the NZD has risen to 63c from under 40c just three year earlier, everyone thought the Kiwi was overvalued and destined to fall. Being able to invest at more than 80c a short while ago may turn out to have been a generational opportunity but it does not mean we don’t continue to face an attractive opportunity in the 60c range.”
He said if the dollar fell back to US40c New Zealanders would experience a value lift of 57%.
Haddad said virtually all risk asset classes are relatively fully priced but there were opportunities for those who knew where to look for them.
“We are really excited about the opportunity set we face and believe the broad backdrop makes this very much a stockpickers’ market...Over the last four or five years you could have done anything and done well because the market was strong. [Now,] if you can be concentrated on a portfolio of well considered ideas on an individual basis that are attractively priced hopefully one can do well over a five to 10-year period.”
He said banking stocks in countries in the “right” part of the credit cycle were worthy of interest. “Lloyds and RBS un the UK are being adversely impacted by an undue focus on recent bad news at the expense of understanding and appropriately valuing their core banking franchises.”
He said aeronautical componentry companies also offered some opportunities.
“The sector is out of favour due to a lower oil price which makes previously mothballed inefficient aircraft economy and thus has medium-term ramifications for demand of new product. However, the sector faces a wonderful secular bull market in demand, particularly with the growth in Asian consumption.”
Investing globally would provide a number of benefits including risk mitigation, a wider opportunity set than was available in New Zealand and Australia and better value, he said.
“The New Zealand and Australian markets are very well picked over. Yes there are some great companies down under but everyone knows them and prices them accordingly,” Haddad said.
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