Investment managers reduce NZ stocks and look to international equities

By Chris Hutching

Friday 30th June 2000

Investment managers are reducing their exposure to New Zealand stocks in favour of international equities and more of them are consolidating to Sydney offices.

Axa New Zealand is reweighting its funds after a ratings downgrade by Morningstar, and Colonial First State Investments has made its New Zealand equities manager redundant in favour of a single Australasian manager based in Sydney.

The moves come against a background of disappointing share prices for local stocks and calls to form an Australasian stock exchange.

Axa's director personal funds management, Mark Pickering, said New Zealand stocks were out of favour but it was not because New Zealand was riddled with rotten companies.

Merging exchanges was not necessarily the answer.

Local companies had healthy average dividend yields of about 8% per annum and were attractively priced.

But investors and global fund managers in places like the US, where dividends averaged 1% per annum, tended to seek income from rising share prices instead and were chasing growth stocks, he said.

Institutional investors, who made up half the investor market, often simply overlooked New Zealand because of its small size.

New Zealand was late to the craze in internet-type growth stocks, which were in the ascendancy internationally as opposed to stocks priced on fundamental values.

Mr Pickering believes the focus on growth stocks has some way to run yet before investors return to selecting stocks based on fundamental values.

He said higher relative performance of growth-focused products had precipitated the downgrade by Morningstar and Axa was now adjusting its funds in favour of international investments across all classes.

Axa's chief investment officer, Barry Lindsay, said merging the New Zealand and Australian stock exchanges might be attractive to some private clients but most institutions outsourced global management of their funds and such a move would have little influence on them.

Another analyst who believes the speculative frenzy in international high-growth technology stocks is only about one-third of the way through its cycle is Infometrics economist Gareth Morgan.

In coming months falling interest rates would help boost international equities, particularly in the technology sector, he said.

New Zealanders tended to concentrate most of their savings in their homes so it was wise for them to diversify in overseas investments.

Meanwhile, counter-cyclical investors were taking advantage of selected bargain priced New Zealand stocks.

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