WELLINGTON -(Dow Jones)- Fund managers AMP Capital Investors said Tuesday the sweet spot for equity buying had passed but the market is still likely to outperform cash and bonds.

"We believe that 2010 will be a more challenging year for growth assets, but shares are still likely to outperform the low returns on offer for cash bonds and property," Jason Wong, AMP Capital's head of strategy, said at a briefing on its fourth quarter results.

Global equity markets have been under pressure recently due to increasing economic concerns and while December quarter returns were strong the company saw a weak start in January for growth asset returns, in particular those in global property and shares, said Wong.

However, "we continue to favor equities over bonds," he said. "We are still early into an economic recovery and policy settings remain very easy, which support the outlook for equity markets, but these conditions will not last forever," Wong said.

"Markets will be particularly sensitive to the timing and scope for higher interest rates as the global economic recovery becomes more entrenched. This phase of the investment cycle can be challenging for equities," he added.

Regarding its New Zealand investments, he said one of the risks is related to when the Reserve Bank of New Zealand would begin tightening monetary policy.

New Zealand emerged in the second quarter of 2009 from a five-quarter-long recession but growth has been insipid with expansion of 0.2% in that quarter and the same in the third quarter.

The central bank kept the cash rate at a record low 2.50% at the end of January and said it would remain at that level until mid-year in order to support the recovery.

AMP Capital's growth fund rose 3.8% over the course of the fourth quarter and 14.5% over 2009, while its conservative fund grew 1.7% in the quarter and 5.8% over the year.

Wong said 2010 promised to be a more challenging year as equity markets are not going to perform as they had.

-Lucy Craymer, Dow Jones Newswires; 64-4-471-5990; lucy.craymer@dowjones.com

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