AMP Capital has released its latest quarterly outlook, noting that it expected international equity markets to head towards a "final climax" of the longest bull market in history this year.
"For many asset classes, returns effectively ‘fell off a cliff’ in December, with year-to-date gains erased in a concentrated near-panic that pulled the key US equity market down from October by -19.6% at the Christmas Eve lows the end of a bull market)," it noted.
"While some of the forces driving that correction are undeniable, such as slowing global growth and corporate earnings, political risks in the US and UK, a sluggish Europe and uncertainty over China, oil and trade, we believe that the degree of weakness seen in December was greatly overdone.
"The New Year brought a reconsideration of the prevailing negativity. This has been expressed in a rally in global equities, which are now up by more than 5% only three weeks into 2019. The scale of the sentiment reversal is shown by the S&P 500 index, which having bottomed in the last week of December, has subsequently staged a 14% rebound."
AMP Capital said active asset allocation could exploit the pricing overshoots that developed in such uncertain markets, and it was utilising the current uncertainty to lift its exposure to international equities.
"Value has improved, so our long-standing neutral allocation is no longer appropriate."
AMP Capital's New Zealand head of investment strategy, Greg Fleming, said he expected New Zealand's market would not have as far to climb in its last peak of the cycle - largely because it did not fall as much as others did in last months of 2018..
At its weakest point last year, it was only down minus 8% from its peak.
The local market was now almost back where it started, he said, while international markets were still 7% or 8% below.
Valuations were much higher in New Zealand than globally, he said, so there was less scope for upside.
"Unless there's an uptick in consumer spending or other factors we're not pricing in, we wouldn't see New Zealand being as strong."
He said it was tough to make asset allocation decisions because "no one is that keen on the bond market because yields are so low".
Ten-year local bonds were still at about 2.2%, which was less than a term deposit. That meant all decisions were made between cash and the equity markets.
Fleming said listed real estate was likely to be the strongest performing asset class this year, providing interest rates stayed low.
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