NZX Euphoria

Most NZ listed companies are enjoying price growth, and one in particular, stratospheric momentum. The NZX 50 has risen more strongly than other international markets, having increased over 21% per annum over the last two years.

At the same time public debt (government) has risen at $27 million a day since John Key became Prime Minister. Government debt has now reached $60 billion. This means the Government is spending more than its income, daily. Not an uncommon phenomenon internationally. Politicians and central bankers are slowly coming to grips with the aftermath of the GFC and attempting to maintain voter support through fiscal and monetary policy – that means welfare, tax and interest rates. The markets are lapping up the cheap credit and bank profits are soaring – but most Western countries are more and more deeply in debt. Companies are flush – countries are broke.

At times like this most people don’t think they need advice around investment. KiwiSaver balances are ballooning, mortgage interest rates are low, business overdrafts are minimised and banks are friendly providers of consumer debt – through credit cards, loans and flexi mortgages. We are in a false dawn.

Times change and they sure will in NZ – next year the NZ dollar is likely to fall. This will provide a boost to exporters and offshore investors – but disaffect consumers of imported goods (most of us). Interest rates will rise and we will not see the likes of a 2.50 OCR again for some time. Whilst retirees with only term deposits seldom celebrate they will at least see some increase in yield as banks raise both borrowing and lending rates. The rest of us with business or mortgage debt need to buckle down and prepare for a slowly rising cost of borrowing. Whilst Auckland might not celebrate a Labour / Greens election victory – Wellington will. The capital enjoys a favoured flow of revenue due to the public sector – this has been somewhat declining over the Key term in government but inevitably will escalate if the more socialist political left return to the treasury benches. In broad terms however income taxes will rise, a capital gains tax could occur and key sectors (electricity) will be affected (with a Labour / Greens alliance).

So what.

For some people, caught up in the hype of market euphoria investing in shares has become as easy as shooting fish in a barrel. For Auckland property investors the market is in strong speculation mode – prices don’t seem to matter when events such as this occur (demand is in excess of supply). Businesses have stronger balance sheets and are therefore employing people – unemployment is declining. Kiwi’s are returning home in the thousands. Fonterra is strong, farmers are productive and profitable. Some ‘trades’ are in a bonanza (building) and engineers in Wellington and Christchurch are smiling.

At times like this fundamentals are crucial.

1. Debt repayment and cash reserves.
2. Diversification of investments – asset classes and geographic.
3. Insurance. Protection of assets and incomes.
4. Planning – linking smarter decisions around investments, tax minimisation, insurance, cash management and retirement planning with short, medium and long term goals.
5. Business and personal plans are co-ordinated.

It is well to remember: - All successful investing is goal oriented and therefore planning driven whilst all unsuccessful investing is performance oriented and therefore market driven.

The media and investors are market focused at the moment – this will be a big mistake for many but it doesn’t need to be.

The information provided in this blog is not intended to be a substitute for professional advice. You may seek appropriate personalised financial advice from a qualified professional to suit your individual circumstances.