View more on these topics

A hobbit among the giants

New Zealand is a lovely place for a holiday, a nice place to live and great for a round of golf but when it comes to investing, the country is a complete dog.

Tourists arriving with UK sterling or US dollars feel like dotcom billionaires thanks to the ridiculously low level of the Kiwi dollar. While this has meant a boom for the tourist industry, the rest of the economy has gone down the drain.

Few UK investors would be tempted to throw money at such a faraway and relatively insignificant market but the lessons that can be learnt from this Antipodean outpost show the dangers of small countries going it alone in the world economy.

One of the most obvious comparisons is with Scotland. Scots were prominent settlers in New Zealand and Dunedin on the South Island is named after Edinburgh.

If any Scottish National Party economists were to visit their southern hemisphere cousins, they would learn an important lesson – small economies lose out to bigger ones.

In New Zealand, two things can be blamed for the lack-lustre economy and stockmarket – the US dollar and the oil producers.

The Kiwi stockmarket is largely unchanged from this time last year. The NZSE 40 was at 1,982 last week although it has been as high as 2,200 in the previous 12 months.

The currency has slid against the US dollar to a string of record lows.

Oil prices have rocketed, food prices are up but wages are static. Ouch. No wonder people are bitching about the Labour-led government.

Investors have been hit by the slump. Axa&#39s Australasia fund was down by 3 per cent in 2000 and Dresdner RCM&#39s fund was down by 6 per cent, although this was due also to Australia&#39s economy being in the doldrums.

Higher prices have stalled housebuying and retail sales, GDP is forecast to contract from 3.5 per cent last year to 2.7 per cent this year although exports are likely to bounce back due to the pitiful Kiwi dollar.

The low dollar has helped the tourism industry with monthly arrivals up about 10 per cent from last year, partly helped by publicity from filming the Lord of the Rings in New Zealand.

While the general public feels the pinch, so are the country&#39s biggest companies. They are also complaining and many have followed the example of young New Zealanders heading to London on their big OE (overseas experience) – they have simply left.

Brewer Lion Nathan was the biggest defector last year, leaving for Australia, and the biggest company, Fletcher Energy, is about to be swallowed by Shell.

The disturbing truth for Treasurer Michael Cullen (a former Brit) is that while the US has been shoring up its economy, the knock-on effects have been crucifying the Kiwis.

One solution being mooted is a joint currency with Australia. But in the absence of short-term plans, the large corporates are bailing out. The NZSE 40 will soon look more like a game of park rugby than the super league.

As these companies clear out or get bought out by foreigners picking up cheap deals, the problems are exacerbated.

The balance of payments deficit nearly doubled last year, largely due to a big rise in profits taken out by overseas companies.

The Scots are beginning to worry about similar trends.

Economists believe this tendency to get squeezed by big economies means smaller countries have to be smarter about using the advantages they do have.

NZ Institute of Economic Research director Alex Sundakov says: “Size is an issue but physical distance is a major factor for New Zealand.

“If you compare our economy with Finland or Scotland, and then you draw a circle around Helsinki you cover 350 million people but that same circle around New Zealand picks up nobody. That has to be the strategic advantage these small economies have to exploit.

“We will keep our dependence on primary production agricultural goods for the foreseeable future but we can be more efficient in what we do.

“Compared with Australia, our public service expenditure on government is much less and this is the key for small economies being more efficient.”

New Zealand reflects a global problem for small countries. When times are good they can ride high, as the Asian tigers have done, and enjoy the growth but when the climate is against them the problems are dire.

Size is a moderating factor, whether you are an investment fund or a country. While the Bravehearts may like the emotional significance of a separate Scottish economy, the reality would not be as attractive unless workers and managers become more efficient.

Meanwhile, anyone looking to invest in New Zealand should steer clear of the stockmarket and buy a hotel.

Recommended

Close Fund Management – Invest 4 Good

Monday, 12th March 2001.Type: Oeic.Aim: Growth by tracking the FTSE4Good UK index.Minimum investment: Lump sum £1,000, monthly £100.Investment split: 100 per cent tracking the FTSE4Good UK index.Isa link: Yes.Pep transfers: Yes.Charges: Initial 3-4 per cent, annual 1 per cent.Commission: Initial 3 per cent renewal 0.4 per cent.Tel: 0800 269824. 

Artemis to stay with Cofunds

A week after saying it would turn its back on all fund supermarkets, Artemis has made a U-turn and restated its allegiance to Cofunds. The boutique fund manager says its concerns with supermarkets applied only to Fidelity&#39s FundsNetwork and that it will remain on the Cofunds platform. Fidelity says its dispute with Artemis centred on […]

Aberdeen launches monthly income plan

Aberdeen has launched a monthly high income plan which will invest in eight Aberdeen and Murray Johnstone closed-end funds.The plan is targeted towards older investors looking for a higher income as well as capital appreciation. It estimated to offer net returns of 9 per cent a year plus capital growth potential.The worldwide income plan will […]

Polar changes cut no ice with consumers

Imagine the scene. In a dark corner of a bar in Canary Wharf, a man is responding to a question about his latest project. “I am the architect of the polarisation review,” he states boldly. Those assembled gasp and exchange glances. The statement evokes a reaction powerful enough to cut through the traditional British reserve. […]

Auto enrolment – so far so good?

Jamie Clark – Business Development Manager The recent report from the Pensions Policy Institute demonstrates the sheer scale of auto-enrolment so far and what we can expect in the future. We’ve pulled out the key information to save you reading the full report. Auto enrolment in numbers Sources: Pensions Policy Institute, The Future Book: Unravelling […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com