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Markets react rationally to terrorist attacks

New Zealand fund managers closed down their international managed funds yesterday and it is unclear when they will start allowing people to redeem their investments.

Thursday, September 13th 2001, 2:19AM

by Philip Macalister

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Most international funds, whether they were invested in shares or bonds, were closed because of the terrorist attacks in the United States.

As a result of the attacks the US markets have been closed making it impossible for managers to price their investments.

"Managed fund investors should not be unnecessarily concerned by any suspension as fund managers will be closely monitoring progress in financial markets," Investment Savings and Insurance Association chief executive Vance Arkinstall says.

"It can be expected that any suspension will be lifted as soon as reasonable and realistic valuations are possible."

However, managers have indicated that if there are signs of panic from investors they can, depending on their trust deeds, continue to suspend redemptions indefinitely.

Guardian Trust Funds Management managing director Anthony Quirk says managers will be assessing the situation as it unfolds.

The US sharemarket isn't opening tomorrow (Thursday) and it is unclear when it will reopen.

"Unless you think this is the end of the world then you're better to hold," he says.

The closest parallel to the latest crisis is the Kuwaiti invasion a decade ago.

Back then investors over-sold, Quirk says.

Likewise Alliance Capital general manager James Thyne says that this terrorist act is likely be such a catalyst for a more concerted effort to improve economic growth.

This is potentially good news for the US economy that has been hovering on the edge of recession.

"It could be said that the markets have reacted rationally so far– but it could also be said that they have over-reacted in more general terms. It is this over-reaction that some investment managers may perceive as an opportunity," Thyne says.

There is a view that markets have been rationale, the stocks that should have fallen such as airlines and insurance companies, have done just that and commodities like oil and gold and bonds have risen.

Quirk says much of the bad news has been priced into the market.

European markets took a hit over night, with Germany's DAX closing down 8.7%, France's CAC down 7% and the FTSE fell 5.7%

The NZSE 40 ended the day down 92 points (or 4.2%) at 1873.

In what may seem like a perverse twist the catastrophe has provided buying opportunities.

Quirk says although volumes were light on the New Zealand market yesterday some stocks were trading at "pretty cheap prices".

"It's not Armageddon from an economic point of view," he says. "It's very unusual circumstances."

Although international funds have been closed, cash, mortgage, New Zealand fixed interest and some New Zealand equity funds remained open.

More stories: Market Reaction to bombing


A fund manager's view on the bombings
US recovery likely to be L-shaped

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

« Demystifying Hedge FundsSovereign takes regulation bull by the horns »

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