NZ investors told to hold the course in wake of US credit rating downgrade and on-going worries about sovereign debt crises in EU and America

NZ investors told to hold the course in wake of US credit rating downgrade and on-going worries about sovereign debt crises in EU and America

By Amanda Morrall

Despite Friday's market flashback to 2008, New Zealand shareholders were reassured this weekend that history wouldn't repeat itself, at least no where near to the same extent.

Fund managers speaking at the New Zealander Shareholders' Association annual general meeting in Tauranga told their audiences that the relative strength of corporates here and abroad would provide a major buffer against inclement economic conditions exacerbated by the US credit downgrade this weekend and on-going fears about the sovereign debt crises there and in Europe.

Fisher Funds Management director Carmel Fisher, a keynote speaker, told investors that whilst the macro-economic picture was undeniably grim, corporate profit sheets remained strong.

"Debts have been paid off over the last four years and company profitability is sound,'' Fisher said after giving an address to more than 230 members of the Shareholders' Association.

Fisher said part of the reason corporates were in such good shape was they had reigned in spending and cleared debt.

"Companies haven't been out hiring, they haven't been spending on anything, they didn't need to because they knew the outlook as uncertain and we were in a low growth environment so they pared everything down to the bone so they could remain profitable and that should make for a good share market," she said.

Fisher rationalised Friday's sharp drop in sharemarkets worldwide as nothing more than panic.

Endless panic

"We saw that in Australia, it was ridiculous. The (ASX200) opened up down and just went for it. We thought we'd have a bad hour but it lasted all day, it was just endless panic," Fisher said.

Despite on-going uncertainty about how the U.S. would break its debt addiction and resolve its US$14 trillion problem, on top of fears about Italy and Spain going the same road as Greece, Fisher said she was confident "logic would prevail at some point" with respect to market viability.

"Stocks will get to a level where they're just ridiculously undervalued so buyers will flood into the market and the market will find its equilibrium again, that stops the market from getting into a free fall situation," she said.

Prime Minister John Key was similarly upbeat about the New Zealand economy withstanding any shocks. (See NZ Herald article for more.)

As for a significant pick-up, Fisher was more cautious.

"Does that (market stability) mean it turns around we will have a spike? No, I don't think we do. There's nothing right now that is going to cause that," she said.

Just how long investors would have to wait for a turn-around significant enough to see them fully recapture losses incurred during the global financial crisis was anyone's guess but some banking strategists are hopeful.

According to a report by Bloomberg, chief strategists at 13 banks (including Barclays Plc and UBS AG (UBSN) are still predicting an average 17% rally in the  S&P 500 by the end of the year.

Today's emergency meeting among Finance Ministers of the G7 nations (who will discuss ways to stem further panic on the markets as the week gets underway) may offer further assurances to nerve-wracked investors.

Yet according to many, investors could have a long way to go before they'll be sleeping easy at night.

The U.K. Guardian Weekly economic editor Larry Elliot, in describing the five key stages of the global financial crisis, suggested we are less than half-way through a financial storm that began Aug.9, 2007.

ANZ Wealth general manager Simon Botherway, also speaking at the New Zealand Shareholders' Association in Tauranga this weekend, admitted fund managers had their work cut out for them but said Friday's meltdown wasn't signalling a repeat of 2008.

The fact that 80% of U.S. corporates had met or grown their profits last year underlined a strong disconnect between the market and the economy at large.

Botherway refused to say how ANZ (with NZ$12 billion under management) was shifting its fund management strategy but told shareholders at the weekend meeting that bonds in all likelihood had seen better days and that a stronger exposure to equities was necessary to generate real returns that were above inflation. (See also this Globe and Mail article on why stock markets are unavoidable for the sake of retirement planning.)

Fisher said the trend among most fund managers was to have a 50% hedging strategy in place.

"It seems to be the normal strategy but there's no science behind what they are doing. They're saying: 'We don't know whether the currency is going to weaken or strengthen so we'll just have 50% hedging so at least we'll get half right," she said.

Fisher Funds was an exception, Fisher conceded and remained totally unhedged.

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She has a vested interest in quieting the horses, but this is indeed a continuation of 2008. Actually, it's a continuation of fiscal growth 2000-on, meets energy plateau 2005-on.

Diverging graphs from then on. No way to tangibly underwrite the expected profits/growth.

Until we work out some way to account properly (current accounting values neither real externality inputs nor outputs) these readjustments must continue, although they'll presumably reduce in scale once the major overshoot gets written off.

 

Market commentators never cease to amaze me. Sellers do not flee markets nor do buyers rush in. Prices and sentiment are indeed changing but in a secondary market there has to be a buyer for every seller so there have to be buyers who see the current prices as representing value.

Carmel Fisher makes excellent sense here , that a disconnect is occurring between companys' actual performance , and the sharemarket's rating of their common stock .

....... When an investor can pick up fully imputed yields approaching 10 % , of businesses with conservative debt levels , and sensible management ....... then it is time to pig out !

Snouts into the trough , this is no different than when the local supermarket heavily discounts your favourite candy ,  coffee & condoms  ....... You purchase bucket-loads more of them , not less !

[ .... pleased to see that you don't hedge , Carmel , it usually causes far more problems than it solves ...... had fun reading a history of Proctor & Gamble's hedging , over the weekend . They really screwed themselves , Disney did the same ... ]