Five years after the onset of the Global Financial Crisis the Developed World has seen virtually no deleveraging and almost every country is still below its peak level of economic activity. The majority of countries in the Developed World now face higher debt levels than five years ago as Government debt has replaced private sector debt. The real deleveraging process has yet to begin.
For now, investors are likely to continue experiencing abnormally low yields and historically high monetary creation in combination with persistent global deficits. This is likely to cause many economic and financial indicators continuing to produce some unique values.
Investors are living through uncertain times with some possibility of mis-steps along the way, especially in Europe as the markets are swayed and moulded by the intervention and manipulation of politicians and central bankers. Many contrasting outcomes are possible in different parts of the world. Some countries will face default, others deflation and some inflation.
New Zealand is less influenced than many developed world countries from the above factors and the Reserve Bank of New Zealand has not embarked on monetary creation and has held interest rates at higher levels than most of the developed world. In respect to New Zealand Equities, the best strategy remains investing in high quality assets, yielding high free cash flow and dividend payments, complimented with high quality growth investments. Chasing returns is unlikely to be a rewarding strategy as hiccups along the way means that buying at appropriate levels and taking profits when on offer should continue to be a rewarding strategy producing attractive returns.
Mark Warminger
Portfolio Manager