Risk assets ‘rocket’ in April, says Tower

Thursday 5th May 2011

As investors turned their backs on low-yielding cash, risk assets such as shares and commodities "took off like a rocket," according to Tower Investments CEO Sam Stubbs.

In the Tower monthly analysis of financial market performance for April, Stubbs said both shares and commodities were back in vogue.

"Good economic news coming out of the US was bolstered by reaffirmation from the US Federal Reserve that it will keep official overnight interest rates at around zero for the indefinite future."

"That has forced money into riskier assets in order to chase returns," he said.

"With the Fed underwriting an apparently limitless supply of cheap cash to the markets, it is not surprising that conditions for a share bull market seem set on autopilot, with the MSCI World Index up 11% year-to-date."

"The Fed continues to spike the punch and, while it does, the party continues. However, it does mean the hangover will be worse when it takes the punch bowl away by raising interest rates."

Stubbs said commodities have also benefitted from the Fed's financial largesse and year-to-date, are up 30%, "streets ahead of other asset classes."

He said the bull market for commodities looked like continuing for some time - to the benefit of New Zealand commodity exporters.

Stubbs also said New Zealand’s low interest rates were boosting the domestic share market.

"Like the US, New Zealand also has cheap cash thanks to the Reserve Bank maintaining its Christchurch earthquake interest rate cut, and that could be underpinning the performance of domestic shares."

"The New Zealand share market put in a strong April performance to keep up with its international peers, and on a year-to-date basis has come within a whisker of matching the performance of New Zealand Government bonds at 7.1% versus 7.7% respectively."

Stubbs said Tower was increasing its investment in high quality bonds, decreasing its cash holdings and despite shares strong April performance, remained "cautiously neutral on shares in New Zealand and globally."

Across the asset classes for April, commodities recorded the biggest rise at 3.5%. New Zealand and global shares were both up 2.3%.

For the April quarter, commodities were 7% higher, New Zealand shares 5.4% and global shares 3.9%.

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