AMP Capital tips dollar, stocks to fall

AMP Capital Investors expects lower returns from local equities, a further fall in the dollar and has increased its exposure to cash.

The country's biggest fund manager, which manages assets worth more than $10 billion, said it had lowered the proportion of its investments in global properties and moved into defensive cash investments and increased its level of dollar investments.

It said returns in the three months ended March 31 had been strong, in particular from growth assets that had delivered good rewards for those taking risks.

"These strong returns for growth assets have flowed from robust and synchronised growth in the global economy," AMP senior portfolio manager Grant Hassell said.

AMP said actively managed New Zealand strategic equities had outperformed with a 16.94 per cent return in the quarter, driven by merger and acquisition activity and a fall in the dollar.

However, Guy Elliffe, head of equities, said local stock fundamentals were looking stretched and this level of returns was unlikely to be sustained.

"We think the market is relatively fully priced ... it's not overvalued to the extent that we're nervous, we're essentially fully invested but there's a lot of good news priced in already," Elliffe said.

The downside for New Zealand stocks seemed limited given the likelihood of further takeover activity, good demand and supply of equities, and reasonable company prospects, especially for exporters.

Equity market returns of mid-to-high single digits were expected, with prices generally flat but bolstered by dividend yields, Elliffe said.

AMP also believed the NZ dollar remained overvalued by about 7.5 per cent above its long-term average fair value of around US58c.

- REUTERS