Many assets look cheap by historical standards but we sense that historical valuation measures may be misleading in the current environment.
Our overall position remains unchanged. Balanced funds are positioned to hold more global shares than usual and less New Zealand shares than usual as we believe the global sharemarket represents better value than the local market. We are also wary that New Zealand dollar weakness will continue and funds are positioned accordingly.
TOWER's global bond portfolios and its New Zealand fixed income funds continue to be positioned for a contraction in the spread between government bonds and bonds issued by highly credit-worthy, non-government entities such as government-backed banks and agencies.
Internationally, equity markets will continue to be focused on policy actions and economic data. Valuations remain reasonably attractive (but certainly not "dirt cheap") and it is difficult to identify a positive catalyst. Market "action" is atrocious but this is what is required for the eventual bounce.
In New Zealand, the company reporting season was slightly worse than we expected. In a strategy sense this means we are waiting for more supporting evidence of economic traction before moving more out of expensive stocks with stable earnings towards stocks with compelling valuations but negative earnings risk.
Continuing concern at deepening economic recessionary conditions worldwide will weigh on commodity prices for some time to come. However, commodity supply is being eased back (most notably by the OPEC cartel) and much planned investment in infrastructure for commodity production, processing and distribution is now cancelled or on hold. Selective commodity purchases by China for stockpiling and infrastructure development are expected to help put a floor under some prices.
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