Investor Confidence Reaches Peak

Confidence amongst New Zealand investors has returned to record levels, according to the ASB Investor Confidence report for the first quarter of 2005.

When asked: Do you expect your net return from investments this year to be better or worse than last year?

A net 24% (up 3%) of those surveyed expect the net return from their investments to be better this year than last year. Only once before since the survey began in 1998 has there been such a high level of confidence.

“The high level of confidence reflects the large returns achieved over the last couple of years in the property and equity markets and also amongst small businesses,” says James Mitchell, Head of Relationship Banking and Financial Services at ASB. “It also, no doubt, reflects a confidence in the long-term prospects of the local economy. To the extent though, that this result indicates people think they can better their returns from investments in the next 12 months, we believe this to be somewhat optimistic.”When asked: What type of investment gives the best return?

Residential rental property remains the asset class that is most widely expected to provide the best return (over an indeterminate horizon), a belief still held by 24% of respondents. Second and third ranked are bank saving accounts (15%, well up from 8%) and term deposits (14%, up from 11%) ahead of managed investments (12%, unchanged) and shares (7%, down from 10%).

“The low and falling confidence in shares remains of interest,” says Mr Mitchell. “This wariness probably reflects memories of the 1980s. A small slip in confidence with regards to shares over the quarter is no great surprise given the 0.8% decline in the NZSX50 over the March quarter. The average 17% return of the last year is unlikely to be repeated in the next twelve months but, equally, the medium-term prospects for New Zealand shares are good and any weakness is as much an opportunity as a threat.”

“The sentiment that opportunities present themselves in flatter markets also seems to be well understood in the residential rental market. It is unlikely that the 12% average house capital gain reported recently by QVNZ will be repeated in the next 12 months but, as this survey suggests and other research in the pipeline will show, many investors are looking to the next year as an opportunity to buy.”

“While shares and property might be the more exciting asset classes, it is worth noting the renewed popularity of bank deposits of late. The pick up in confidence revealed in this survey is also evident in the flows seen by ASB in recent months to its high interest savings account (FastSaver) and term deposits. Obviously rates as high as 6.95% p.a. on offer at present are of appeal. This is important for the investment community as, at the end of the day, it is this bread and butter type asset class that is by far the most popular investment - 35% of respondents hold bank savings or term deposits as their main investment.”

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