The RBNZ held its benchmark interest rate at 2.5% citing a weak global backdrop and benign domestic inflation. Despite a backdrop of softening global growth, the growth forecast for the NZ economy continues to be one of moderate recovery, supported by growth in housing market activity, the acceleration of the Canterbury rebuild and stimulatory monetary policy.

The positive growth environment in New Zealand sets us apart from the majority of the world and combined with a somewhat defensive and insulated stock market, therefore presents attractive investment opportunities within the current environment.

The local stock market is likely to hold up reasonably well in uncertain times due to low interest rates, excess liquidity and attractive valuations. The NZ stock market is relatively immune to many factors affecting many global markets, with many well managed companies, strong cash flows and above average dividend yields.

The NZ dollar is likely to continue to be well supported versus the US dollar and the Euro, due to interest rate differentials and differing growth profiles, combined with demand for soft commodities and the severe drought in the US. We remain cautious on un-hedged overseas investments and prefer local and Australian investments.

Mark Warminger

Portfolio Manager