Over: NZ growing faster than the rest of the world

By Rob Hosking

Thursday 5th February 2004

New Zealand's high-flying dollar is unlikely to soar for much longer and the currency, along with the economy, could be in for a hard landing.

The country's largest fund manager, AMP Capital, has removed most of its currency hedging, in expectation of a fall in the dollar, the company's chief strategist, Paul Dyer, said.

"We believe the New Zealand dollar is pretty close to peaking and that it can't stay at its current levels for very long," he said in announcing the company's quarterly investment results.

At least as important as the New Zealand/US cross rate was the trade weighted index, he said, and the long-term level for that was between 54 and 60. At the moment it is in the mid-60s "and New Zealand can't sustain that for very long."

That, and the current account deficit which Mr Dyer warned about in AMP's last quarterly result means a "hard landing" for the economy later this year or into 2005 is an increasing risk, he said although he is not predicting that will definitely happen.

Major currency swings, of the sort New Zealand has seen over 2003, "have a substantial impact on the economy, usually about two years out."

With the world economy picking up, the period of New Zealand growing faster than the rest of the world was over, he said.

On the investment front, AMP saw value in several local stocks Telecom, Contact and Transpower rate highly.

However, the large rise in equity markets both in New Zealand and offshore, was probably over, he said.

A year ago the mood was still downbeat for equities, and "gloom is a good time to invest."

"Unfortunately, investors are just not gloomy enough at the moment."

The year saw all AMP's asset sectors make a positive return. Topping the list was passive hedged global equities, which brought in a gross return of just under 44%.

In the New Zealand market, both passive and strategic equity sectors did well, at 26.3% and 29% respectively.

"But you would be very optimistic to expect 2004 to be anything like that," Mr Dyer said.

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