CIP INVESTMENT MARKET COMMENTARY
Prepared by Peter Collerton, Capital Investment Planning Ltd
October was the worst month for equity markets for many years. The US S&P 500 was -16.8% for the month and is now down -37% for 1 year. The UK FTSE100, German Dax and Australian All Ords all had negative months of -10.7%, -14.5% and -12.7% respectively. The Asian indices were the worst over the month down by -24.6% for China and -22.5% for Hong Kong. The NZSE 50 was comparatively resilient down by -8.7% and is now down -33.0% over a year.
Bond yields continued their downward trend (and their capital values rallied) as expected interest rate cuts are factored in.
The NZD has been stable against the AUD but fell against the other major currencies as the USD continued to strengthen.
The New Zealand household has the same problems as the USA, UK and Australia. We have built up over the last 17 years almost 2 times the level of debt compared to disposable income we had in 1990. Now it has caught up with us as the assets backing these debts (housing mostly) have started retrenching. 90% of this debt is in housing. At the end of 2007 there was NZD 179 billion in total debt.
The effects of this are now being broadly felt but especially in the building and retail sectors. Are the problems this is causing going to go away quickly, looking at the level of debt? The answer is no. New Zealanders are going to be repaying debt for some years as asset prices are unlikely to rise in the next couple of years.
So if we all start saving, isn’t that a good thing? In the short term no, as it means we are not buying goods, which means that companies’ earnings are falling and so they can’t pay the wages that we can save. Therefore more households could find themselves in a position where they can’t save or spend.
Now increase the scope of this happening from the 5 million New Zealanders to the millions living in Australia, USA, UK and Europe. If consumers everywhere are not spending and saving instead, the reason for a global recession becomes clear.
This is the reason for the heavy interest cuts we are now seeing around the developed market as central banks try to put more money in consumers’ pockets so they keep spending some earnings.
The only good news for NZ is the fall in oil prices which will help reduce inflation pressure. The NZD has fallen against most main currencies over the last few months which will help exporters, but not inflation.
Last month we commented on how the financial market rescue packages had been announced but it was too early then to see the effects. The packages announced do seem to have stabilized the world financial markets and consequently are having the desired effects.
There has since been further central bank interest rate cuts in the USA, UK and Europe. China has also announced an economic stimulus package worth USD 375 billion.
Since then the focus of the markets has switched to how deep and long a recession the global markets are going to have. The International Monetary Fund (IMF) has further revised down the GDP only one month after they came out with their quarterly estimates in October. The reduction in forecast for 2009 is -0.8% for the World to 2.2% GDP growth. The USA was revised down to -0.7% a retraction in GDP (see table below).
as at 31 October 2008
|
1 Year |
3 Years |
5 Years |
|
Avg % p.a. |
Avg % p.a. |
Avg % p.a. |
| Inflation (Jun 08) |
5.1 |
3.2 |
2.9 |
| GDP real (Jun 08) |
1.1 |
1.9 |
3.1 |
| Housing (Sep 08) |
-6.8 |
7.7 |
14.5 |
|
|
|
|
|
| 6 month Deposit |
8.0 |
7.6 |
7.0 |
| 90 -day Bank Bill |
8.5 |
8.1 |
7.5 |
|
|
1 year ago
|
3 years ago
|
5 years ago
|
| NZD/AUD (rate x years ago) 0.8809 |
0.8464 |
0.9245 |
0.8676 |
| NZD/GBP (rate x years ago) 0.3604 |
0.3722 |
0.3955 |
0.3587 |
| NZD/USD (rate x years ago) 0.6137 |
0.7606 |
0.6978 |
0.6010 |
|
|
|
|
| NZD/AUD (% chg) |
-3.9 |
4.9 |
-1.5 |
| NZD/GBP (% chg) |
3.3 |
9.7 |
-0.5 |
| NZD/USD (% chg) |
23.9 |
13.7 |
-2.1 |
|
% return p.a.
|
% return p.a.
|
% return p.a.
|
| NZSX 50 Gross Index |
-33.0 |
-4.8 |
n/a |
| ASX All Ords Gross Index NZ$ |
-41.3 |
-3.2 |
4.3 |
Hang Seng (Hong Kong) |
-55.4
|
-1.0
|
2.9
|
|
Nikkei 225 (Japan) |
-48.8 |
-12.3 |
-3.8 |
| SSE Comp (China) |
-71.0 |
19.4 |
5.6 |
| S&P 500 (USA) |
-37.5 |
-6.6 |
-1.6 |
| FTSE 100 (UK) |
-34.9 |
-5.9 |
0.4 |
| GDAX (Germany) |
-37.8 |
0.4 |
7.3 |
| CAC40 (France) |
-40.4 |
-7.1 |
0.7 |
| MSCI World Index NZ$ |
-24.0 |
1.0 |
3.2 |
|
|
% change p.a.
|
% change p.a.
|
% change p.a.
|
| Gold |
7.7 |
24.3 |
22.9 |
| Oil |
-27.0 |
3.7 |
24.0 |
Prepared by Peter Collerton, Capital Investment Planning Ltd, November 2008
Capital Investment Planning Ltd, P.O. Box 22238, Christchurch, New Zealand
Phone +64 3 379 1913 Fax +64 3 377 2330
Important Note. This publication may be copied in whole or part provided Capital Investment Planning Ltd is acknowledged as the source. Investment and mortgage rates are indicative only and, whilst correct at the time of publication, are subject to change without notice. Text may be opinion only and should not be seen as a substitute for personal professional advice relative to an individual's personal situation.
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