Investors need to be “more careful than ever before” when constructing portfolios, according to New Zealand Institute of Economic Research (NZIER) principal economist, Shamubeel Eaqub.
Eaqub told the Perfecting Investment Portfolios conference in Auckland last week that headline figures or total averages are no longer useful guides.
“Investors need to know what’s driving each and every part of their portfolios,” he said.
In his presentation titled ‘Investing in an uneven world’, Eaqub said the post-GFC landscape had evolved into a world where politics and central bank action had obscured economic reality.
“The politics is so powerful that economic signals are not coming through,” he said.
Eaqub said investors could expect a prolonged period of uneven growth as the “shallowest” economic recovery on record underpins low inflation and spurs central banks to try “funky stuff” with unknown consequences.
“This is so different from every other economic recovery,” he said. “This time it really is different.”
According to Eaqub, both businesses and consumers have been reluctant to spend “which is not typical recovery behaviour… that’s holding back growth as much as fundamentals”.
He said if the current disinflationary environment tips over into true deflation, businesses and investors would struggle to cope.
“None of us have every truly dealt with deflation,” he said. “It’s not how we do business.”
Despite the short-term risks posed by the current economic stalemate, Eaqub said long-term factors such as the aging population and technological innovation are “mounting” while “getting closer and faster”.
For example, he said as baby-boomers shift from accumulation to decumulation there would be a “huge change in investment patterns”.
In summing up the conference, NZEIR economist, Aaron Drew, said the spectre of uneven growth, short-term asset price dislocation, and long-term generational changes emerged as common themes across the 11 presentations.
Drew said investors could draw several conclusions from the consensus.
“Given differences in cross-country and sector performances and risks this is a market where dynamic asset allocation, skill, absolute returns, and ‘better beta’ may shine,” he said. “But still investors need to be prepared for lower absolute future returns.”