Euro woes no cause for panic (yet)

The mass European ratings downgrade by Standard & Poor's is unlikely to harm New Zealand's investment markets and could even have a positive effect, according to one local fund manager.

Tuesday, January 17th 2012, 6:00AM

by Niko Kloeten

Nine countries in Europe had their ratings cut over the weekend, including Italy and Spain (both down two notches) and France, which lost its coveted AAA rating.

But Pathfinder Asset Management executive director John Berry said the downgrades didn't come as a huge surprise.

"I think the first thing to note is the widespread downgrades were not entirely unexpected by the markets. The uncertainty and volatility we've seen in the last 12-24 months are going to continue.

"However, by downgrading countries on mass you're putting pressure on the European politicians to put their house in order and recapitalise the banks and re-finance sovereign debt. So there is a good side to it.

"What does it mean for New Zealand? Well in the face of market weakness during the global financial crisis New Zealand's economy was quite robust.

"Valuations of New Zealand companies are not overly demanding and dividend yields are high. New Zealanders may not think so but on a global scale we are doing quite well."

Berry said this relative resilience could make New Zealand a more attractive destination for both local and offshore investors.

Already New Zealand is an attractive destination for KiwiSaver funds, he said.

"My general perception is people like to stick close to home. It's called home-country bias and it happens all over the world whether in fixed interest or equities - you know the brand and you know something about the management.

"It [the Eurozone crisis] gives people more of a reason to stick with that home country bias, although we think there is a place for diversification and its benefits."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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