Investors advised to return to improving equity markets

By PAULA OLIVER

Free-falling international equity markets have stabilised and investors should not be bailing out of equity-dominated funds, says AMP Henderson.

Chief investment officer Paul Dyer said yesterday that some investors had been spooked by bad returns over the past two and a half years.

Over the past quarter, they had moved their money away from equity and balanced funds and put it into fixed interest assets.

"But we can quite unambiguously say that future returns for fixed interest are going to be materially lower than what people have been enjoying," Dyer predicted.

He said that investors should be looking to the future rather than the past, and ignore their inherent tendency to react to returns.

AMP Henderson, the country's largest funds manager, said it should be noted that the global sharemarket "correction" that began in 2001 was one of the most severe of the past 100 years.

A look at the US equity market showed that investors had to go back to the first oil shock of 1974 to get a similar fall - and before then only World War II and the Great Depression came near the slump.

"This has been very severe. It's quite unusual. We went for 14 years from 1987 without a correction of any magnitude. That gave investors a false appreciation of what taking equity risk was all about," Dyer said.

AMP Henderson managing director Catherine Savage said markets had been more stable in the past March quarter, but investors were nervous and their sentiment was negative.

Overseas equity markets had moved from being clearly overheated to a fuzzy area where they were considered reasonably valued.

The New Zealand stockmarket had moved sideways and most shares were considered reasonably valued, AMP Henderson said.

Dyer said that normal patterns of returns should resume and that risk return prospects were much better now than at any point in the previous three years.

Good returns of about 9.5 per cent were expected in property. The rise of the New Zealand dollar played a big part in the March quarter's returns.

AMP Henderson's high-risk fund lost 3.4 per cent in the quarter and 19.2 per cent in the year.

The low-risk fund had a positive 0.5 per cent quarterly return and a negative 0.6 per cent annual return.

Property had a 1.5 per cent return in the quarter and 8 per cent for the year.

Global equities had a disastrous year. Passive equities not hedged against the rising Kiwi dollar lost 9.6 per cent in the quarter - and 39.2 per cent in the year.