Pacific Investment Management Co., manager of the world’s biggest bond fund, wouldn’t be concerned if New Zealand were to delay its budget surplus target beyond 2015 provided any government spending boosts growth.
“If decisions are made to increase fiscal spending and push out the time of the surplus, I don’t think it would have a big impact on bond investors or the currency markets,” Scott Mather, head of global portfolio management at Pimco, said on a conference call from Auckland.
The Newport Beach, California-based company’s holdings of New Zealand and Australian bonds are about 4 percent to 5 percent over a neutral position, which Mather said is a “notable overweight” for the manager of $2 trillion in assets. Prime Minister John Key’s government has shown a commitment to returning to a budget surplus in 2015 after posting a record deficit in 2011.
“That’s why investors such as ourselves are increasing their exposures to government debt in the region,” Mather said. “What you want as an investor is a good credit growth profile and a government that has a sustainable balance. It doesn’t mean they have to be always in balance but they have a path toward balance and a commitment to it.”
Both New Zealand and Australia “stack up relatively well” compared to other developed nations in terms of debt levels and growth prospects, he said.
“It’s nice to be connected through trade with regions of the world that are growing,” he said. The reliance on exports is a vulnerability not a weakness and the region doesn’t display the same sorts of “terminal illnesses” that much of the rest of the developed world has, he said.
“That doesn’t mean growth will easily bounce back to normal,” Mather said. “New Zealand and Australia will be impacted by having currencies stronger than they normally are, and will be that way persistently.”