Investors largely unswayed by positive market developments

• Investor Confidence has remained stable at nett +15% this quarter
• Confidence in respondents’ own home as providing the best returns continues to soften despite positive developments in the housing market
• Strong returns have helped expectations for KiwiSaver improve
• Low interest rates are impacting perceptions of term deposits, but by less than expected
  

New Zealanders' investment return expectations appear largely unswayed by recent developments, according to the latest ASB Investor Confidence Survey.

Overall, confidence remained at 15% for the quarter, with 28% of people feeling returns on their investments will improve in the next 12 months, 13% saying they will worsen, and 40% expecting them to remain the same. 

ASB senior economist Chris Tennent-Brown says the latest survey showed improving market conditions were taking a while to flow through to investor sentiment.

"This is middle of the road investor confidence overall, and that’s ok, but given the positive developments of late, it’s a little disappointing. Interest rates are at a record low, you’ve never been able to borrow money cheaper, the capital gains tax cloud is gone, and the share market is trading at a record high. Given that backdrop you would think people would be more upbeat," says Tennent-Brown.

"Rather than being encouraged by lower interest rates and the capital gains tax getting dropped, perceptions about housing deteriorated", Tennent-Brown says. 

The perception of investors' own homes providing the best return on investment softened, dropping from 22% to 20% nationwide, and from 26% to 22% in the regions, while Auckland remained stable at a lower 15%. 

"It's surprising given the capital gains tax threat has been removed and interest rates have fallen, to see overall confidence in housing, be it rental or owner-occupied, as providing the best return has slipped through the quarter," says Tennent-Brown. 

"It's interesting that the price appreciation we’ve been seeing regionally at this stage isn't providing any boost to expectations of returns and neither have the low interest rates." 

Overall, perceptions of rental properties as providing the best return on investment remained at 15% - a four-year-low.  In Auckland this increased slightly from 20% to 21% but dipped in the regions from 13% to 12%.

"Maybe people need to see stronger price gains to be well and truly convinced. It might be something we see in Spring but we're certainly not seeing it in the second quarter," says Tennent-Brown.

When it came to views on the best return by bank product, KiwiSaver led the pack with 13% viewing this as the best product for return on investments. 

"It is pleasing that KiwiSaver is the top of the pile in terms of expectations of returns, because we have seen some really strong returns for KiwiSaver this year, and the past quarter was particularly good," says Tennent-Brown.

"Drilling into the details, it’s also pleasing to see the age group where perceptions about KiwiSaver providing the best returns out of the bank products is strongest, is in the 40 to 60 year-old age group, where we would expect people to be at the peak of their earning and saving power. Their balances are likely to be relatively high, so the market movements are more noticeable. It’s really encouraging to see the higher confidence in this age bracket." says Tennent-Brown. 

"On the other hand, the perception of shares providing the best return has also ticked up, but not by much. 

"Given the local share market has provided amazing returns this year, and is at a record high, it's disappointing that perception about the sharemarket providing the best returns has only risen from 8% to 10% this quarter. 

"For some reason the strong market performance isn’t making people think that shares will provide the best returns - 10% of respondents is within the range of where it has been for the last five years. We would have thought more respondents would have picked the sharemarket as the investment that will provide the best returns given how well it’s gone over those five years. It just seems that kiwis can't get confident about the sharemarket, which is a pity given the strong returns that have been generated over a long time now."

ASB reports covering a range of commentary can be accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html