KEY POINTS:
Markets may have just had the worst month or so in memory, but the one certainty for investors is that the current credit crisis will resolve itself eventually, fund manager AMP Capital said yesterday.
Markets have now weathered a year of bank failures, credit drying up and soaring in price as banks become reluctant to lend, consumers shutting their wallets and investors becoming first bearish and increasingly panicked.
"Certainly what we've seen over the last couple of weeks and over the last few months is totally unprecedented really - something we haven't seen for a generation or even several generations," said AMP Capital Investors' head of investment strategy Leo Krippner.
Global shares suffered double-digit declines for both the quarter and the year as investors sought safe assets amid concern as to how the credit market conditions would impact on the global economy, Dr Krippner said.
But investors with diversified investments had not lost their shirts, although they were not seeing the stellar returns of recent years.
For the quarter to September 30, AMP Capital's conservative diversified fund returned 2.2 per cent, and 4.3 per cent for the year; its balanced diversified fund returned -2.2 per cent or -6.8 per cent for the year; and its growth diversified fund returned -6.5 per cent, or -15.2 per cent for the year.
In contrast, returns were positive for New Zealand fixed interest and cash, which rose 5.6 per cent and 2.2 per cent respectively for the quarter, and 12 per cent and 9.2 per cent for the year, before fees and tax.
"In terms of our strategy, the risks from the credit crunch still leave us cautious but not pessimistic," Krippner said.
The willingness of world governments and finance sector authorities to respond quickly and forcefully to evolving events was positive, and further cuts to official interest rates were likely in the near future.
AMP's balanced diversified fund looked like its annual losses would be in line with the worst to date.
"But it's not unprecedented, and it's really roughly something we'd expect to see every 15 years or so."
Panic selling on global stock markets has picked up pace this week, pushing investors into safe haven assets such as government bonds and gold, after the rescue of two big European banks and emergency government decisions to guarantee bank deposits. The Dow Jones index slipped below 10,000 points for the first time since October 2004. .
Global share prices had already factored in a 30 per cent decline in earnings, which meant that they'd have to factor in even more bad news to continue declining.
"With financial markets, it's one of those things that you can never rule that out, but it's just less likely that we're going to see continued bad news coming out from this point," Krippner said.
Global growth would fall to around 3 per cent, which would feel soft compared with the 6 or 7 per cent growth of recent years, but would remain positive, he said. Falling oil and food prices would boost consumer spending and help rein in inflation, allowing further interest rate cuts to stimulate the global economy.
- NZPA
