by Susan Edmunds
Nikko Asset Management held its conference, called Finding Clarity – four global themes driving investments – in Auckland yesterday.
Presenters offered a relatively bullish outlook, especially in relation to the fortunes of New Zealand.
“Almost everything that worries the rest of the world, New Zealand is a beneficiary of,” Stuart Williams, head of equities in New Zealand said.
“Migration, tourism, education, they’re all great beneficiaries for us...The hunt for yield which New Zealand has benefited from.”
While some commentators said the New Zealand equities market looked fully-valued on a P/E basis, Williams said he was not convinced. “If Spark is going to generate a 6.5% yield and they’re growing their earnings, is that stock overpriced? I can’t see any reason why that stock doesn’t trade on a 5.5% yield which gives a price that’s a hell of a lot higher than it is now.”
He said the thing that had been holding back the perception of New Zealand had been the embattled dairy sector.
But the combination of an increased Fonterra payout announcement and a solid profit result from the co-operative this week could turn that around.
His colleague, Fergus McDonald, head of bonds and currency, agreed dairy had been the “fly in the ointment” for New Zealand. “But the economy has been growing at 3.6% with dairy in the doldrums so when that starts revving up and there’s a lot of infrastructure spend coming through, New Zealand growth rates are going to continue to for a long time into the future.”
He said there was a lot of fiscal stimulus in the economy because of local and central government infrastructure spending. “That will underpin equities and is a reason why New Zealand interest rates shouldn’t fall any further.”
There have been concerns that China could fall victim to a banking crisis because of its growing debt, which could have significant effects on New Zealand's economy.
But Robert Mann, Nikko’s senior portfolio manager of Asian equities said he expected the country to be very stable for at least the next 15 to 18 months. He did not expect a debt crisis on the horizon.
“The growth of the middle class will continue strongly, which means more Chinese tourists, more people drinking milk. All those things are almost certain to continue over the next few years. It’s almost impossible to see that slowing down.”
He expected the rate of retail investment from China into other economies, such as New Zealand's, to continue at the same pace.
Will Low, head of global equity, said the lack of returns in bonds was still driving people to look for returns in bond proxy stocks, such as SOEs.
He said while asset prices seemed full there were still stock-picking opportunities. But he said it was worth questioning whether there were signs in international asset classes that the efficacy of quantitative easing might be starting to be debated - and if so, what could be used as a conduit for policy instead.
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