tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Thursday, September 24th, 9:53PM

News

rss
Latest Headlines

'At some point someone needs to be allowed to lose some money'

Whether share markets have rallied too far, too fast depends a lot on the outlook for interest rates, Harbour Asset Management managing director Andrew Bascand says.

Tuesday, June 16th 2020, 10:43PM 1 Comment

Sharon Zollner

He, ANZ chief economist Sharon Zollner and board chairman Rob Campbell spoke at a CFA Institute webinar on the “dislocation of equity and debt markets with the real economy”.

Zollner outlined the economic challenges ahead for New Zealand.

She said the 5% reduction in the economy as a result of the absence of international tourism would be a “horrendous recession” on its own but it had an additional layer added in the form of the damage done by the lockdown.

She said, while there had been a big sigh of relief as New Zealand moved to level one, there was still wariness which could dent spending and investment.

The Reserve Bank has responded with monetary stimulus, including significant quantitative easing. Zollner said: “The more you intervene in markets the more you break them.

“The uncertainty is enormous. I do suspect equities are pricing all the upside and turning a blind eye to some of the downside scenario. It’s a very risky world out there. Central banks with their monetary morphine have succeeded with compressing all pricing of risk but at some point that needs to rewind.”

But Bascand said it was not so clear cut.

He said anyone thinking about the price of equities would consider the economy and outlook for earnings. How earnings were valued would depend on the level of interest rates, he said.

In the past 12 depressions or recessions, it had taken 10 quarters for earnings to get back to their previous peak.

He said if it was assumed earnings would only get back to 90% of their peak, while bond rates remained lower those equities still looked good value.

“That’s because the fall in interest rate is a greater force than the expected fall in earnings.”

A 20% fall in earnings would make the appeal more marginal, he said. New Zealand’s government debt level was still at a manageable level by international standards.

Zollner said the risk was that the system would become reliant on QE and history had shown that it took more than the second half of a typical cycle to unwind. “The Federal Reserve was making progress but ran out of runway … all this can kicking, we will eventually run out of road.

“At some point someone needs to be allowed to lose some money.”

Inflation was a risk to markets, they said.

Normally, an economic shock would push New Zealand’s dollar down but this time it was holding up internationally, Zollner said, “which is pretty unhelpful. The Reserve Bank will have to keep its foot to the floor for a while yet.”

Tags: Andrew Bascand CFA equities Sharon Zollner

« Investors offered rural exposure – without the riskFMA finally shows what full licensing looks like »

Special Offers

Comments from our readers

On 17 June 2020 at 1:01 pm MS642 said:
β€œAt some point someone needs to be allowed to lose some money.” And it's a racing certainty the banks will make sure it's not them

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
News Bites
Latest Comments
Subscribe Now

Weekly Wrap

Previous News

MORE NEWS»

Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 3.85 3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 ▼2.45 2.65 2.79
Kainga Ora 4.43 2.93 3.07 3.24
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
SBS Bank 4.54 3.05 3.19 3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 2.55 2.69 2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 3.29
TSB Bank 5.34 3.29 3.45 3.59
TSB Special 4.54 2.49 2.65 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.15 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.00 3.13 3.02

Last updated: 21 September 2020 10:48am

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox
 
Site by Web Developer and eyelovedesign.com