AMP bets against NZ shares and dollar

AMP Capital Investors is trimming its investment in New Zealand shares on expectations that local stocks will continue to underperform overseas counterparts, and the kiwi resume its downward path next year.

The company, New Zealand's largest fund manager, with about $11 billion under management, said yesterday the September quarter had been a "bumper" one for its diversified funds, which are invested across local and international shares, property cash and bonds.

AMP's low, medium and high-risk diversified funds returned 2 per cent, 2.6 per cent and 3.2 per cent respectively for the quarter, and 10.4 per cent, 14.6 per cent and 18.7 per cent for the September year, making it "a great one", said head of investment strategy Leo Krippner.

Looking ahead, however, returns were likely to be more modest.

"One reason is simply that recent returns in many asset classes have been well above the long-term averages."

Krippner also said that with New Zealand's economic growth likely to continue to lag, returns from local equities would likely be dampened further from their "modest" 1.3 per cent September quarter performance.

With the New Zealand dollar's recent rise, AMP believed it was now trading at a 10 per cent premium to "fair value".

"That means it's got renewed scope to depreciate," said Krippner, at AMP's September quarter investment briefing. "We don't like the New Zealand dollar so we want to stay overinvested in foreign currencies, or underhedged back to New Zealand dollars."

While returns from global equities were likely to be "more modest in the medium term" because of interest rate concerns in some economies and geopolitical unrest, AMP believed they were still a better bet than the domestic market.

AMP had also put more money into New Zealand property.

"You'd expect that it might be ready for some quite low returns, given that it's had a big rush up and the New Zealand economy is looking quite slow, but there's actually a lack of supply out there," said Krippner.

"Certainly, our property guys have been saying they've been able to negotiate good rents and they've been able to get good revaluations."

AMP was also overweight in New Zealand cash but underweight in global bonds, global property and hedged global equities.

AMP head of New Zealand equities Guy Elliffe said the rebound in the currency and its effect on economic activity was an increasing risk for the New Zealand equity market.

"That continues to be balanced by the unbelievably fertile merger and acquisition environment."

Krippner said a significant downward revaluation of the dollar was likely once the Reserve Bank signalled it had finished raising rates. AMP expects the Reserve Bank to hike rates to 7.5 per cent tomorrow.

Soft prediction

* AMP is positioning its investments for continued soft performance by the local sharemarket and a slide in the New Zealand dollar.

* It believes the dollar will fall significantly only when the Reserve Bank says it is finished hiking interest rates.

* It is picking that to happen in the first half of next year.

* AMP says its overall investment returns are likely to weaken in coming months.