Tower Investments, one of the largest fund managers in New Zealand, is warning of a sharemarket bubble this year as overconfident investors pay too much for stocks.
The New Zealand sharemarket was one of the world's top performers last year with trading jumping by a fifth.
But Tower Investments warns that there are signs of irrational exuberance where investors are paying too much for shares.
It says Fletcher Building and Restaurant Brands are among the companies that are too pricey at 15 times their earnings.
Chief executive Sam Stubbs said rising demand for stocks is pushing prices too high.
He said many companies are showing increased profits because they are borrowing money at lower rates, but that does not last.
Mr Stubbs said that unless there is underlying growth in the economy corporate profits will not grow in the long term, which will hamper the ability of companies to pay dividends in the long term.
He said Fletcher Building's business is cyclical which means that no matter how well the company's run it will have good and bad times.
"I think what the market is pricing in is that things may be consistently good over a very long period of time for the company."
Mr Stubbs said Tower is now putting much of its new Kiwisaver money into Australia rather than New Zealand because many of its stocks are better value.
More pressure from Kiwisaver providers
Mr Stubbs also said boards of listed companies will face more pressure from Kiwisaver providers this year as their increasing stakes give them more clout.
"Kiwisaver schemes will ask increasingly difficult questions of boards and directors that are underperforming, but also will provide a very positive feedback loop for boards and directors that are doing a good job."
He said there has always been debate about director's fees in New Zealand and it's likely that good directors and boards will ask for and be entitled to receive more, but there will also be active debate about some of the directors who are considered to be overpaid if they're not adding value.