The early 2016 stock market falls have been bad, but not quite bad enough, to signal an all-out plunge back into growth assets, according to Stuart Millar, ANZ Global Wealth head of portfolio management.
Millar said ANZ, the country’s largest fund manager with about $23 billion under management, scaled back its exposure to growth assets in the middle of 2015 in favour of cash.
“We recognised then that global growth expectations were too high and we moved our portfolios to be relatively more defensive,” Millar said.
He said while the early 2016 market dips have been significant, the declines to date haven’t quite matched the levels of “correction we’ve been looking for to invest heavily in equities again”.
“We haven’t yet seen the extreme negative sentiment from investors that would give us a buy signal,” Millar said.
However, he said buying opportunities may arise from the ongoing share market volatility.
“I don’t think this is the start of a long-term bear market but there may be opportunities to rebalance our portfolio in part [towards equities],” Millar said. “But we’re maintaining an overall defensive tilt.”
Likewise, New Zealand’s second-biggest fund manager, the more than $19 billion AMP Capital, remains cautious about growth assets.
Grant Hassell, AMP Capital NZ chief, said with financial assets out of step with the underlying global economy “a little bit of a correction was inevitable”.
“And there’s more to come,” Hassell said. “The volatility of growth assets will probably force some investors to exit their positions.”
He said AMP Capital would look for opportunities in the equity markets as they arise.
“We like shares in a correction.”
Since December the manager has also halved its exposure to commodities, freeing up cash for a potential return to growth assets, Hassell said. AMP Capital has also tilted its fixed income portfolio to long duration assets while also adding inflation-linked bonds to the mix and reducing credit exposure.
“We think the NZ Reserve Bank has to cut rates.”
Overall, he said plunging price oil prices, a slow-down in China, US interest rate rises and widening credit spreads had ramped up uncertainty for global investors.
“Liquidity is also something to watch,” Hassell said. “Globally, liquidity has degraded.”
Other NZ managers have also remained sanguine in the face of the January stock market slump – the worst start to a year globally in decades.
John Berry, Pathfinder Asset Management director, said the $100 million manager has not pared back exposure to growth assets.
“We’re concerned about the brutal start to the year but we’re still positive,” Berry said.
However, since last year Pathfinder has significantly reduced its currency hedge from 75 per cent in October to 25 per cent at the latest count in a move that took the edge off global stock market falls for NZ investors.
“That’s why we think it’s important for investors to think of currency as a separate asset class,” Berry said.
Mint Asset Management chief, Rebecca Thomas, said the $450 million firm hadn’t made any changes to its asset allocation in the wake of the latest volatility shock.
“We’ve been carrying a lot cash in our portfolios since last year,” Thomas said.
But the January price drops haven’t yet tempted Mint to pile back in to shares. In fact, Thomas said while Mint was poised to add more Australian stocks to the portfolio, the recent spate of bad corporate news from across the Tasman has put that move on hold.
Furthermore, the relatively subdued falls in NZ equity markets – with the NZX50 down a tad over 3 per cent for the year compared to a decline of more than 13 per cent in US markets at their nadir this month – has not been enough to spark manager buying splurges.
Thomas said the quirky nature of NZ share markets had probably contributed to the subdued reaction of the NZX.
“There’s not an overall trend around sector rotations that you see in other markets,” she said.
With no forced sellers and NZ investors still in summer holiday mode, the local market also avoided much of the action, Thomas said.
AMP Capital’s Hassell, said the NZ stock market shares some attributes with its fixed income and credit markets.
“It seems to be a low beta market that insulates it to a certain extent from offshore trends,” Hassell said. “We also have a lower exposure to sectors that have been hit hardest globally – such as energy.
“Maybe there’s also a bit of complacency. It tends to take a little longer for the NZ share market to reach the same positions as the rest of the world.”
On Friday, global share markets bounced from monthly lows with US and European markets up more than 2 per cent on the day and the Nikkei closing almost 6 per cent higher.