By Amanda Morrall
Despite 2012 shaping up as another year of volatility with nagging concerns over sovereign debt, Eurozone fractures and the threat of inflation, Tower Investments sees reason for optimism in New Zealand and opportunities to make money for value investors.
With international markets roiling, Tower CEO Sam Stubb's said the firm has shifted its focus toward New Zealand and Australia, moving more money into the domestic equities of both countries, which look poised to weather the storm better than most.
"We're relatively bullish about New Zealand,'' said Stubbs today at a media briefing. "If you go overseas, you'll see how relatively good it is here and we feel the same about Australia.''
In addition to increasing its equities exposure in Australia and New Zealand, Tower said it has upped its weighting of commercial Kiwi property, increasingly hedging to the New Zealand dollar, a currency it believes has entered a "long-term period of strength."
'Plenty of upside in our Trade Me shares'
Tower's NZ$3.3 million uptake of Trade Me shares in December's initial public offering is a reflection of its overall outlook for domestic equities. Equities portfolio manager Stephen Bennie said the company's purchase of Trade Me shares was the largest wholesale uptake in the country.
Since the iconic Kiwi company went public on December 13, shares (originally sold at $2.70) have risen above $3 but were at $2.89 today. Based on pricing models of similar Australian outfits, Tower tags their potential value at $4.66.
Commercial New Zealand property is another asset class favoured to perform well in 2012, along with selective bonds from Europe's so-called PIIGS nations (Portugal, Ireland, Italy, Greece and Spain).
With the European Central Bank printing and pumping more money into foundering European nations, a potential banking crisis looks to be averted but without economic growth in the developed world inflation remains a long-term risk, said Stubbs.
'Buy a house'
For that reason, he believes the best bet for average Kiwis will be buying a house, or for those who already own a home, fast tracking the mortgage and socking the rest into KiwiSaver or a comparable retirement scheme.
"We don't see anything in this environment that says you shouldn't be positive about buying or owning a house,'' said Stubbs.
He said when mortgage rates start climbing, it'll be a sign of either growth, or inflation. In either case, owning a home will be a form of protection against it, he adds.
"Inflation is the home owner's best friend. If we are going to be heading into a period of inflation, you'll want to own your own home.''
'Fix your mortgage rates'
Tower's view on the fixing versus floating home loan debate, is to fix.
"Long-term rates are very low historically, people should be fixing.''
And despite New Zealand's love affair with term deposits, Tower's position is they are a poor place to be invested, long-term.
"In five years plus, they'll look back and see they weren't getting an appropriate rate for the money they were putting on deposit for a long time.''