Global bond markets may need 3 more yrs to normalise - NZ wealth fund
OSLO Oct 3 (Reuters) - Global equity prices outside Europe are approaching true value but fixed income yields, although rising, could take another three years to reach a "normal" level, the head of New Zealand's sovereign wealth fund said on Thursday.
Wealth funds need to diversify more to reduce risk, and investments in infrastructure are the biggest opportunity in the market, Adrian Orr, the chief executive of the NZ$23 billion ($19.1 billion) New Zealand Superannuation Fund, told Reuters.
"Global equity prices, in the U.S. and around the world outside Europe, are much closer to value now and it's not obvious you'll get outsize returns there," Orr said. "In Europe, there's still a real price/value gap and that's where the real contrarian investors will be overweight."
Global sovereign funds hold around $5 trillion in assets and have been among the most stable investors during the recent downturn as their very long investment horizon increases risk tolerance. Many of them buy when the rest of the market is selling.
Orr said the recent increase in bond yields was a sign that the global economy was stabilising - returning to real growth with low inflation - and central banks should take that at a signal to start removing stimulus measures.
"Fixed income is the real challenge because the price of debt has been artificially pushed down by central banks," Orr said. "You've seen a rise in bond yields recently but to me that's more normalisation."
"I really hope that we'll continue to see a smooth transition of these debt prices ... but (the time) to normal could be three years."
With equity values high and bond yields still only normalising, wealth funds should diversify, Orr added.
"I think infrastructure investment is a glaring opportunity, with high demand for infrastructure from many countries, including developed countries, like the U.S., where not a whole lot has been built since World War Two," Orr said.
"But the gap between the supply and demand for capital is big because many governments are just not available or not sophisticated enough to ... truly share the risk." ($1 = 1.2060 New Zealand dollars) (Editing by Kevin Liffey)