Poor June quarter for AMP investors

Investors in AMP suffered a poor June quarter as world share prices plunged, but overall returns for the year were still up around 7 per cent, across a range of diversified funds.

AMP manages about $11 billion for investors.

World share markets were hit by the European sovereign debt crisis during the June quarter, and fears of a double-dip recession.

New Zealand and world shares fell around 10 per cent in the June quarter, offsetting positive returns for New Zealand and overseas bonds, in a mixed bag of investment results for the period.

But in July, share prices rebounded with AMP's growth and balanced equity funds making up half of their previous quarters' losses in the last few weeks. That set the scene for much better returns for the September quarter than in the June period, according to AMP Capital Investors head of investment strategy Jason Wong.

AMP does not expect a double-dip back into recession.

"While the risks for economic activity have increased recently, double-dip recessions are very rare and we believe the economic expansion can continue for some time yet," he said.

But there was a long list of "worry factors" for investors, including sovereign debt risks, households under financial stress and the need for government spending cutbacks in developed countries.

The unusually uncertain outlook made investing difficult and AMP expected a rocky path for share prices and modest returns across all asset classes in coming months, Mr Wong said. "The next year or two is going to be quite tough for the global economy."

Internationally, there is a strong link between economic growth and share price performance.

The economic recovery was below par in the main developed countries, but emerging markets were "experiencing a robust" recuperation.

The recovery in New Zealand was "tepid" by historical standards so far.

On a real, inflation-adjusted basis, gross domestic product per capita has only grown in the past two quarters, though the economy officially came out of recession a year ago. The recovery was export-led so far, with the domestic sector still struggling.

Despite a tepid recovery, Mr Wong still expected Reserve Bank governor Alan Bollard to lift the official cash rate again today from 2.75 per cent to 3 per cent. The central bank was likely to keep lifting interest rates to a "neutral" level of about 4.5 per cent over time.

"We are at the very early stages of a tightening cycle, so it does not make any sense to be pausing. Clearly they will go tomorrow," Mr Wong said yesterday.

Unless there was global shock, Mr Wong did not expect a pause in rate rises, because underlying inflation was forecast to be close to 3 per cent. But Mr Wong said rising interest rates were already priced in and should not drive up the New Zealand dollar further.

"The fact that our Reserve Bank is tightening and others (overseas) are not, is an indication our economy is in better shape, because we are getting a boost from commodity prices going up and (our) links with China," Mr Wong said.

- © Fairfax NZ News