The Blog

Local and Global Economies

Local economy GDP in New Zealand from 2014-2015 was a respectable 3.5%. The farming sector made up c25% of this total, with the Christchurch rebuild making up a further 17%. As dairy continues to languish, and the Christchurch rebuild continues to slow to ‘normalised’ building levels, we expect to see the wider New Zealand economy slowing. The only major sector still supporting growth in New Zealand has been the record immigration levels we have witnessed over the past 12 months. Immigration alone made up over 45% of New Zealand’s 2014-2015 GDP performance. The slowing in New Zealand’s economy has led to a large drop in business confidence, as shown in the chart below, which in turn is leading the market to price in further cuts in the New Zealand Official Cash Rate (OCR). At present the market is reasonably confident we will see another 0.25% reduction on the 10th September, with the potential for a further similar rate cut in December taking the OCR to 2.50%, a level last seen in January 2014. Chart 1 – ANZ Business Confidence Index   […]

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Volatility rears its head… briefly

The month of August has proven to be one of the most volatile months in share markets in over 4 years with both the Dow Jones Industrial and S&P 500 both producing five days in the month where they both rose or fell by over 2%. The volatility has been blamed on the drop in the Shanghai Composite, but the reality is that this might only apply the Chinese and Emerging markets. For the volatility seen in the US the catalyst was thought to be the next stage of the “Taper Tantrum” as the markets now priced in the expectation of the US Federal Open Monetary Committee (the Fed) increasing interest rates for the first time in over 6.5 years. There is little doubt that the markets initially got nervous about the drop in the Shanghai Composite, which has now dropped by over 39% since its high in June 15. This massive increase in volatility has led investors to finally start to review the pricing of risk in the markets, and hence we saw the S&P500 also drop by around […]

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Differences between Financial Advisers

The Financial Adviser Act 2008 introduced an authorisation process to control who can and can’t provide financial advice. This has also caused some confusion, particularly for investors who are seeking financial advice. There are 3 categories AFA – Authorised Financial Adviser RFA – Registered Financial Adviser QFEA – Qualifying Financial Entity Adviser Authorised Financial Advisers (AFA) AFAs are registered on the Financial Services Provider Register and belong to a Disputes Resolution Scheme. They also go through a more rigorous approval process by the Financial Markets Authority and have higher competency standards. Authorised Financial Advisers can provide personalised advice on complex investments, such as shares, bonds, futures contracts etc as well as what RFA and QFEAs can advise on (discussed below). Typical clients are individual investors, trusts and companies. Authorised financial advisers must follow the code of professional conduct. (Roger, Jack and myself are AFAs and are Certified Financial Planners) Registered Financial Advisers RFAs are required to be registered on the Financial Services Provider Register and belong to a Disputes Resolution Scheme, they are not ‘authorised’ by the Financial Markets Authority. […]

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Bonds 101

  Bonds are typically a word most investors have heard of, but it is an investment that is not fully understood. Shares however, are generally well understood, investors know they can fluctuate in value, they sometimes pay a dividend, they can be risky. Bonds are seen as ‘safer’ investment options, but that is not always the case. Bonds versus Term Deposits Comparing a bond to a term deposit from a major bank; a term deposit is an agreement from the investor to lend a specified amount of money to the bank, with an agreed interest rate, with agreed repayment terms. Throughout the term of the investment, the investor will receive interest on monthly, quarterly or at maturity of the investment. If the investor wishes to receive their money back, prior to the maturity of the investment, the bank will penalise the investor (for breaking their contract) by reducing the amount of interest which is to be paid. In New Zealand, this can turn a 4.5% interest rate (per annum), to a 1.5% interest rate by penalising the lender 3% of the […]

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The information provided in this email is general only. It does not take into account the investment objectives, financial situation or particular needs of any person and may not be appropriate for your requirements. We strongly suggest that investors consult a financial adviser prior to making any investment decision.