US money manager tells investors to expect more market turmoil

In October, the S&P/NZX 50 had its strongest month since the global financial crisis, notching up a 7 per cent gain.

Sharemarkets have settled down following a tumultuous third quarter, but a visiting US money manager says investors should prepare for ongoing volatility amid an ageing bull market.

Kurt Umbarger, a global equities specialist with T. Rowe Price in Baltimore, which has more than US$700 billion ($1.05 trillion) in funds under management, briefed clients of New Zealand's Harbour Asset Management at an Auckland event yesterday.

He said two of the biggest risks facing markets were policy missteps -- such as the US Federal Reserve raising interest rates more quickly than anticipated in response to unexpectedly strong inflation or wage pressure -- and a potential, albeit unlikely, "hard landing" for the Chinese economy.

In October, the S&P/NZX 50 had its strongest month since the global financial crisis, notching up a 7 per cent gain.

The index, which has gone up 9 per cent this year, closed up 0.8 per cent at a fresh record of 6071.2 last night.

But Umbarger said more of the kind of market turmoil seen through August and early September -- driven by concerns about China and uncertainty over the outlook for US interest rates -- was likely.

A near-zero interest rate setting in the US, in place since 2008, has lubricated equity markets but the Federal Reserve could raise rates next month for the first time since 2006.

"We'll probably have to get used to more volatility in the days to come as markets are forced into these later, more mature stages of this bull market," Umbarger said.

He said T. Rowe was as concerned as anyone about China. "But the stakes are very, very high. We don't think the Chinese Government is going to allow a really hard landing to happen -- there's too much of a social implication to that."

T. Rowe has a tie-up with Harbour Asset Management that allows the Wellington-based firm's clients to invest in the US manager's Global Equity Fund -- a portfolio of roughly 130 stocks from 31 countries -- through a New Zealand PIE fund.

Umbarger said the firm saw big opportunities in "peripheral" emerging markets including Indonesia, the Philippines and Peru.

"We don't think the Brics [Brazil, Russia, India, China and South Africa] are necessarily the future any more."

Harbour chief Andrew Bascand said that with the local market trading at around 17 times forward earnings, Kiwi investors needed to dial back their expectations following several years of strong returns.

"There's been no timeframe historically when the NZ equity market, from that level, has done between 15 and 20 per cent per annum return for five years in a row."