'Double-digit' property and sharemarket gains help investor confidence turn a corner - bank survey

An ASB investor confidence survey for the September quarter shows more Kiwis expect returns to improve.
An ASB investor confidence survey for the September quarter shows more Kiwis expect returns to improve. Photo credit: Getty.

Sharemarket recovery and house price gains are helping investor confidence turn a corner, a new survey shows.

An ASB September quarterly investor confidence survey of 800 people shows although overall investor sentiment is still pessimistic, more expect returns to improve over the coming year. Compared to the June quarter, investor sentiment rose 14 points, from -25 percent to a net -11 percent expecting an improvement.  

Confidence in property was highest, unchanged at 20 percent for homeownership and 19 percent for rentals. Confidence in shares and KiwiSaver each dropped 1 percent, to 11 percent. 

ASB senior economist Chris Tennent-Brown said investor sentiment was affected by a number of factors. Confidence hadn't increased for any one investment type. 

In Auckland, confidence increased from -27 percent to -19 percent, largely centred around the housing market. Compared to Auckland, sentiment in the regions showed greater improvement, increasing from -23 percent to -7 percent.  

"Aucklanders' confidence in their own home and rental properties as the place that will provide the greatest returns ticked up in the latest quarter and was part of the recovery," Tennent-Brown said.

"In the regions we've seen a slight dip in expectations for housing (rental and own home), whereas in Auckland we have seen expectations lift, resulting in a net unchanged result."

Increasing demand and a better-than-expected outlook for the labour market had a positive effect on Auckland house prices. Despite the recession, REINZ figures from January to September 2020 show the median house price in Auckland city increased $323,000 (34.8 percent) already this year, from $927,000 to $1,250,000 (11.9 percent nationwide).   

The bank now expects house prices to keep rising, which it says will be reflected in investor confidence in the coming quarters. It expects house prices to rise 12 percent in the year to June 2021.

"We're thinking double-digit gains over the year ahead," Tennent-Brown said.

"But we don't think the gains will be focused on Auckland: prices across the country should garner support from the combination of low-interest rates and the economic recovery." 

Uncertainty created by the COVID-19 pandemic caused volatility in share prices, particularly from March to June. Despite improvement in the September quarter, only 11 percent of survey respondents expect returns from KiwiSaver and the sharemarket to improve in the year ahead.  

"There is so much uncertainty at the moment, which is causing a lot of volatility for investments like shares, KiwiSaver and managed funds.

"Although it had a massive dip in the first quarter, the New Zealand sharemarket touched all-time highs in the third quarter," Tennent-Brown added.

 Investor confidence was strongest among the under 40's age group, with 32 percent expecting investment performance to improve in the year ahead. Among those over 60, just 11 percent expected improvement. 

"Young people with long investment time frames are well-positioned to invest in growth assets like shares that have been volatile but strongly positive since the dip in March. In contrast, older investors with more of an income focus are being impacted by the low-interest rate environment, and not expecting it to improve," Tennent-Brown added.

Greg Smith, managing director at Fat Prophets, said although property investment remains strong, investing in shares requires less cash. He's seen investors channel extra money saved during COVID-19 into well-known companies such as Air New Zealand and Auckland Airport, in the hope they'll recover long-term.  

"New Zealand shares have a very high dividend yield versus [for example], US shares...in relative terms, compared to what you can get in the bank, a 4-6 percent dividend yield on a share is a lot more attractive," Smith said.

Overall, investor confidence has increased, but there's plenty of room for improvement. 

"Uncertainty always leads to a lack of confidence in a range of areas, including financial standing and investments, but we have a lot of positives in New Zealand which are helping ease some of that uncertainty and discomfort that investors are feeling," Tennent-Brown added.