Nikko Asset Management New Zealand is cautious about the outlook for Kiwi stocks, but the firm's head of equities says it is difficult to see a catalyst that would drive a sudden turnaround in their strong performance.

"I'm worried about it, and every day more worried about it, but what I don't see is the disruption to the yield curve," Stuart Williams told a media briefing in Auckland today.

The US Federal Reserve held off hiking rates today, keeping the target for federal funds in a 0.25 to 0.5 per cent range, while flagging the potential for a December rate rise.

Concerns about America's central bank announcing a rate hike at today's meeting had markets on edge earlier this month, prompting a local sell-off that saw the S&P/NZX 50 plunge 2.5 per cent on September 12.


Low interest rates and bond yields have been driving a rally in equity markets, pushing capital into stocks for the income they provide through dividend payments.

Williams said he did not expect a December rate hike, should that occur, to cause major disruption in equity markets.

"You're talking about 50 to 100 basis points," he said. "Until you get to 3 or 4 per cent [rates] then you're forced to take another investment decision."

Williams, whose firm manages more than $5 billion in assets in New Zealand, said strong earnings expectations from Kiwi companies made the NZX an attractive proposition for many overseas investors.

An improving outlook for the dairy sector, meanwhile, was also positive for the international perception of this country, he said.

Fonterra raised its farm-gate milk price by 50c to $5.25 a kilogram of milk solids on Wednesday - its highest point in two years.

The dairy co-op itself reported a 65 per cent jump in annual net profit to $834 million today.

"The confidence levels of the agricultural sector are increasing," said Nikko's head of bonds and currency, Fergus McDonald.

"[Dairy] had been the fly in the ointment for the perception of New Zealand among overseas investors," McDonald said.

While not expecting a major turnaround in the local equity market's performance, Williams warned that the same level of returns seen in recent years were unlikely to continue.

The S&P/NZX 50 has gained over 200 per cent during a more than seven-year bull-run that began in early 2009.

The rally has driven the index's price-to-earnings ratio to around 20 times, which is well above its historical average.