Confidence levels among New Zealand investors are at the highest peak since late 2014, rising to 25%, the latest ASB Investor Confidence Report shows.
According to the report, net investor confidence (the difference between those who expect their return on investment to improve in the coming year, and those who feel it will get worse) reached a two-year high of 29% over February, before settling at 25% for the full first quarter.
The confidence levels are a stark contrast to the four-year low of 3% for the same time last year (in Q1 2016), and up on the 19% recorded last quarter.
The recovery returns confidence to levels last seen at the end of 2014, when confidence peaked at 29% in Q2 2014.
ASB senior wealth economist Chris Tennent-Brown says this is in part a reflection of the positive returns from growth assets recently.
“Despite what has in many respects been a scary year on the geo-political front, it’s been a solid year for many investments, particularly share markets,” Tennent-Brown said.
“Significant global events will happen and investors need to look through the noise at investment fundamentals, which have actually been quite positive. Specifically, for global share markets, the economic growth prospects are good, inflation remains contained and interest rates are low.”
Despite a sizeable decline (from 23%), the investment providing the best returns this quarter was ‘own home’ at 20%, marginally ahead of rental property at 19%.
But sentiment is starting to shift.
“Kiwis have always had a lot of confidence in housing, and why wouldn’t they? We’ve seen amazing growth in house prices over most people’s lifetimes,” Tennent-Brown said.
“But your own home is first and foremost the roof over your head, not an investment tool, and history tells us house prices don’t always go up.”
Although the survey shows a rise in investor confidence, it also reveals people are tending to use safer (e.g. bank savings accounts) rather than riskier investments.
Over March however, there was a significant shift away from bank savings accounts (4%) towards managed investments (14%), when rating the best return on investment.
A significant drop for personal homes (from 23% to 14%) over the same period, with rental properties now being seen as having the best return (at around 20%).
“These are interesting developments in the term deposit and managed funds space. For several years now term deposit returns have been extremely low on a historic basis, but so was inflation – meaning that investors were still getting a reasonable return, because inflation wasn’t eroding the gains the term deposits were making,” Tennent-Brown said.
“But inflation is on the rise, and is running at a rate of 2.2% p.a, which now makes term deposits less attractive.
“With short-term interest rates expected to remain low, hopefully we are seeing clients seek out investments that help keep them ahead of inflation and are appropriate for their risk appetite and investment goals, such as managed funds.”