KEY POINTS:
Turmoil in US sharemarkets from the credit crunch is not the only threat to New Zealand markets this year, local factors are also at play, sharebroker First New Zealand Capital says.
The company yesterday issued its outlook for 2008 with a "modest downgrade" for New Zealand, reducing estimates for GDP growth from 2.6 per cent to 2.1 per cent.
Investment would be "highly challenging" said Jason Wong, First New Zealand Capital director of economics and strategy.
Wong said the economic environment was "not conducive towards any significant recovery in earnings for New Zealand equities".
Unlike recent years, NZ equities would not benefit from a tailwind from global equities and faced a sluggish domestic growth environment and continued earnings downgrades.
"We recommend a defensive stance. In particular we would be wary of consumer and housing market exposures," he said.
The high value of the New Zealand dollar limited the appeal of export stocks. "But we don't expect any significant appreciation that would destroy these stocks."
Commodity prices were likely to slip from historically high levels, but a dairy pay-out of at least $7 per kg of milksolids for the season ending May is almost certain and next season's payout is on track for around $6.50.
The export sector would be boosted by the performance of the dairy sector and oil production from the new Tui well, with both already having a positive impact on monthly trade figures.
Outside of these areas export growth has been fairly sluggish and should remain that way, Wong said.
The time for a general boom in NZ exports will be when the currency plunges and sustains at a lower level, which was not in this year's forecast.
"On our forecasts, CPI inflation was above for every quarter through 2008," Wong said.
The prospect for any easing of interest rates looked some way off.
In the subdued global investment climate, which could last many months more, New Zealand equities were unlikely to be an attractive investment proposition for global investors.
Most global investors did not need to be here and would not, Wong said.
