AMP Capital NZ stays neutral on stocks, listed property, overweight on cash, foreign exchange

AMP Capital New Zealand, which manages more than $18 billion of assets, remains neutral on stocks as equity benchmarks chart record highs, preferring to hold more cash, foreign currencies and alternative growth assets.

The fund manager's latest quarterly strategic outlook broadly maintains the view of asset classes it set out last November and its forecasts for the next three years are broadly unchanged, with New Zealand's economic growth expected to average just under 3 percent a year for the next three years. Global growth is forecast to be 3.6 percent this year, the strongest since 2010.

"The factors shaping the outlook remain the same, including lower net migration, slower residential construction, slowing house price inflation, strong growth in labour income, robust business investment and a positive fiscal impulse in 2018 and 2019," the firm said in its assessment of New Zealand.

"We are not adding risk to diversified portfolios, and prefer to position for moderately lower returns in early 2018 rather than running the risk of incurring steeper downside in the event of some kind of shock to investment markets," it said. "Retaining a reasonable cash allocation provides flexibility to lift our holdings of other assets once greater value emerges."

AMP Capital kept its neutral view on global equities although its tone has become more cautious. Since its November report, the Dow Jones Industrial Average has climbed a further 11 percent to a new record high. Its latest report reiterated that there were "no strong immediate catalysts for further gains from record index levels" but added that current index levels "are looking increasingly like euphoria".

The firm expects New Zealand shares to broadly track global equities in the near-term although lower business confidence "is an increasing risk". Listed property "should track global equities in the near term with risk of underperformance if longer-term US interest rates continue to rise and the yield curve to steepen."

AMP Capital predicts "range trading" in global bonds as core inflation pressures remain contained. In the medium term, global bonds are still "poor value", with yields "artificially suppressed by central bank activity." New Zealand bonds should follow the US market although New Zealand's relatively robust fiscal outlook "could maintain decent demand for NZ bonds," it said.

While it forecasts similar returns from cash and bonds over the medium term, "cash has lower risk of capital loss than bonds." It favours foreign currencies over the kiwi on the basis of diverging monetary policy between the US Fed and RBNZ that "suggests NZD risks are skewed to downside on a 12-month horizon." The kiwi is a little over-valued on some measures - domestic growth "lacks catalysts beyond migration at present" while dairy prices are forecast to be lower.

(BusinessDesk)