Commodities – a fascinating and valuable asset class

07 May 2013

Commodities are an underappreciated and often misunderstood asset class. The drivers of commodity prices, particularly at an index level, are complex and sometimes harder to grasp than for fixed income or equity assets. The means of accessing this asset class are not always intuitive either. But from an asset allocation perspective commodities have an interesting set of risk-return and correlation characteristics.

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G4 central banks and the New Zealand dollar

12 April 2013

G4 central banks¹ are continuing to pull out all the stops to support economic growth and reflation in their respective economies. In the past few days we have seen confirmation of the expected aggressive monetary easing in Japan, European Central Bank and Bank of England meetings that confirmed a continued bias to ease, and labour market data out of America that suggests quantitative easing 3 (QE3) isn’t about to end anytime soon.

¹ The G4 central banks are the Bank of England (BOE), the Bank of Japan (BOJ), the Federal Reserve (FED), and the European Central Bank (ECB).

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The changing fixed income environment

05 April 2013

In an environment with interest rates at low levels, the risk is that interest rates will increase at some stage. The immediate focus for New Zealand financial markets has been the prolonged dry spell that is currently affecting large parts of the country and the likely impacts on the New Zealand economy. However, looking further forward we are approaching a time when the historically very low interest rates will come to an end, changing the dynamics of fixed income investment.

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New Zealand shares - margin call

03 April 2013

Low profit margins mean New Zealand shares are currently trading at a premium to global shares. While listed profit margins have improved recently, they are still below historical averages.

Looking ahead, contained labour cost growth and a higher GDP growth path suggests there is room for further margin improvement and this should provide earnings support for New Zealand shares over the coming year or two. This could act to offset the potentially negative valuation effects of rising interest rates.

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