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Source: ASB

* Investor confidence has recovered significantly in Q3, climbing 14 points from the previous quarter’s record low.
* Aucklanders’ continued confidence in the housing market was a key factor.
* Low term deposit returns, which are expected to go even lower, are acting as a counterbalance

Confidence among New Zealand investors has recovered significantly in the past quarter thanks to a stabilising sharemarket and the better than expected housing market, according to ASB.

The latest ASB Investor Confidence Survey shows net investor confidence – the difference between those that think their return on investment would get better or worse in the coming year – has lifted from the previous quarter’s record low of -25% to -11% for the three months to September.

This coincides with ASB economists aggressively revising house price forecasts in recent weeks, saying the ‘housing correction’ has passed, and predicting annual house price inflation will peak at 12% for the year to June 2021.

ASB senior economist Chris Tennent-Brown says, “Going into lockdown, many pundits and government agencies forecast a material housing market correction to accompany New Zealand’s deepest economic recession in decades. We were less pessimistic with our prediction of a 6% fall in prices, but some were suggesting house price declines well into double-digits.”

“Fast forward a few months and national house prices have bounced back to fresh record highs. Uncertainty is never good for confidence but as the COVID picture in New Zealand has become clearer, a rising tide of confidence has been reflected in this survey.”

But Aucklander’s confidence did not extend beyond the housing market. The resurgence in confidence was mainly driven by those outside of Auckland, where confidence increased from -23% to -7%, compared with Auckland where the increase was a more muted -19%, up from -27% in the June quarter.

The overall lift in confidence did not translate into a materially more positive view in investor expectations for any particular investment class, however, with confidence in shares providing the best return on investment down 1% to 11%, and own home and rental home unchanged at 20% and 19%, respectively.

Mr Tennent-Brown said there are a number of factors affecting investor sentiment as a whole.

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

“In the regions we have seen a slight dip in expectations for housing – both rental and own home – whereas in Auckland we have seen expectations lift, resulting in a net unchanged result across the country.

The factors influencing Auckland’s housing market, which include increasing demand and a more positive than expected outlook for the labour market, mean house prices are likely to continue climbing in Auckland, and we expect to see this reflected in coming quarters in terms of investor confidence. 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.”

Confidence was also split by age, with 32% of under 40-year-olds expecting return on investment to improve in the coming 12 months, compared with net 21% of 40 to 49 year-olds, net 20% of 49 to 50 year-olds and just net 11% of those over 60.

“Young people with long investment timeframes 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,” says Mr Tennent-Brown.

The latest survey also showed some of the shine had come off KiwiSaver in the past few quarters. In the three months to March this year, KiwiSaver was viewed as the best bank product for return on investment at 16% – significantly higher than term deposits, managed funds or a bank savings account. Confidence dropped to 12% in the June quarter and 11% this quarter.

Mr Tennent-Brown attributes  the mood shift to the swings in members’ balances over the year, with record high KiwiSaver returns in 2019 boosting confidence in the first quarter of the year, and COVID uncertainty and falling fund balances contributing to the decline in the second two quarters.

“It’s been a volatile year for sharemarkets, and that’s flowed through to investments like KiwiSaver. But hopefully people have stuck with their long-term strategies and seen a decent recovery in KiwiSaver balances over the past six months,” says Mr Tennent-Brown.

“Overall investor confidence still has 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,” says Mr Tennent-Brown.

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

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