Outlook for Investment Markets
The outlook for most asset classes remains unremittingly downbeat. The broader economic backdrop for the domestic sharemarket is discouraging. The Australian and global property securities markets continue to plunge, and while valuations in many international sharemarkets are now more attractive, corporate profit news is unrelentingly negative, and there's little immediate prospect of any turnaround.
New Zealand Property - Outlook
New Zealand real estate investment trusts (REITs) still offer the attractive characteristics of relatively high (and through portfolio investment entity funds) tax-paid returns, and fewer problems than their international counterparts, as New Zealand REITs have less leverage and smaller offshore exposure than their counterparts. The yields on offer (one estimate is around 13.0 percent) still make the sector attractive when set against the yields on offer from both cash and domestic bonds. There are, however, greater risks than previously that current dividend distribution rates will be cut, as the economic outlook is clearly looking weaker.
New Zealand Cash & Fixed Interest - Outlook
As is the case in most countries, the Reserve Bank's inflationary concerns have evaporated. The Bank's focus is now unambiguously on helping the economy recover from a slowdown in world trade more severe than previous predictions. The markets and commentators expect New Zealand interest rates to continue falling. The bank bill futures market is expecting short-term interest rates to be under three percent by mid-year, roughly one percent lower than current levels. On one estimate, 10-year government bond rates could drop to around 3.75 percent, and better-quality corporate debt yields move from over six towards five percent.
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