No fears of bear market, AMP Capital says

Investors are being told not to panic after the first negative quarter in New Zealand and global shares for more than three years.

Tuesday, October 20th 2015, 1:52PM

The S&P500 was down 2.64% in September and down 6.26% in August. The NZX50 declined 3.5% in the three months ended September 30.

AMP Capital’s investment team says it is not a sign of an imminent bear market and there are opportunities for investors who are willing to ride out the increased volatility.

“Our view is that China growth risks are overplayed, global share market valuations are attractive, US interest rates will not rise materially, the global banking system is better capitalised than in previous years and there are no major housing market bubbles to bring it down,” managing director and head of fixed income Grant Hassell said.

While many have been concerned about the potential for a slowdown in the Chinese economy to lead to a global recession, which has been reflected in market sentiment towards broader emerging economies, commodities, and major developed economy exporters such as Japan and Germany, AMP Capital’s view is less pessimistic.

Chief economist Bevan Graham said: “China is going through a challenging transformation but we remain of the view that a slower China is a more sustainable China. In addition, we’re already starting to see signs of recovery. Consumer confidence rose to a 15-month high in September, which allays fears that the recent share market correction would have a detrimental impact on household spending."

Concerns about global growth saw the US Federal Reserve leave interest rates on hold in September.

But the AMP Capital team said an increase was coming and a hike this year was possible, although next year was more likely.

In New Zealand, AMP Capital’s expectations for growth are for a rate of 2% to 2.5% over the next two years.

One more OCR cut is expected before Christmas.

“In the context of our expectations around interest rates, the approach we are taking within our portfolios is to look closely at the opportunities provided by the recent market corrections to buy assets at a cheaper price, but we remain patient,” said AMP Capital Head of Investment Strategy Keith Poore.

In share markets some value has been restored to markets such as the United States and New Zealand, while other regions such as Hong Kong listed China shares and European shares have become increasingly inexpensive.

"The defensive characteristics of New Zealand shares came to the fore again over the September quarter, limiting the losses to a third of global shares. This is despite September being the weakest quarter for domestic shares since June 2012. We expect a reduction in the rate of dividend growth to have an impact going forward.

“Dividend growth has been a key support for New Zealand shares over the past year but this will slow going forward because distributions have outpaced earnings in recent quarters as companies have responded to dividend-hungry investors,” said Poore.

He said it was important to keep an eye on fundamentals. “In contrast to term deposits, volatility is the price investors pay for higher returning assets and the lesson of the last few years is not to panic during market corrections,” Poore said.

AMP Capital is overweight in global and emerging market equities, neutral on Australasian equities and listed property and infrastructure, overweight on commodities, cash and foreign currency and underweight in global and NZ bonds.

Tags: AMP Capital