Harbour Navigator: When Rates Fall, Equity M&A Comes to Play
The Arvida deal and now cancelled Warehouse takeover approach gave rise to an expectation of more M&A (merger and acquisition) activity. A lift in capital market activity could be prompted by expectations of lower interest rates linked to weakening activity in the current economic cycle.
The state of the current economic cycle reflects an established cross-sector pattern of weakening activity alongside falling interest rates, ...
Harbour Navigator: Hot sheds - Growth in data centre demand and the real estate investment opportunity.
Global demand for data centre space is set to increase significantly and the compute density of GenAI significantly increases the electricity required to keep computer capacity cool.
Real estate is a key determinant of a successful data centre, with data centres having specific locational requirements making land with access to electricity a crucial enabler for data centres.
In our opinion, the DC megatrend tail wind may remai...
Harbour Navigator: Is bank lending too cautious?
You might think that our title is provocative, and a fringe view. But this was a consensus question from investors and analysts after our research visit to Australia in the week before Easter.
Regulation has encouraged bank lending to become more conservative, more housing focused and increasingly outsourced through broker channels.
Regulators seem to want even less bank risk and more financial stress tests.
As a result...
Harbour Navigator: Interest rate pain intensifies
Lenders have experienced only modest defaults on loan portfolios, underpinning an argument that monetary policy is yet to really bite.
However, we note arrears and KiwiSaver hardship withdrawals are rising before loan losses are felt, demonstrating consumer stress, and portending further spending reductions.
Unemployment is typically the final penny to drop, and indicators of the labour market suggest consumption will contin...
Harbour Navigator: Climate Clarity - Developments in climate and sustainability reporting
Many New Zealand listed companies will be reporting against new climate disclosure regulation for the first time this year.
The U.S. SEC has recently approved new mandatory climate reporting rules, following in the footsteps of New Zealand and other countries.
Globally, sustainability reporting standards have been developed under the newly formed International Sustainability Standards Board, involving the consolidation of ex...
Harbour Navigator: New Zealand households to remain challenged
New Zealand households have experienced a significant increase in their cost of living over the past four years, led by higher interest rates, transport, food, and housing costs.
Total consumption has been able to grow 8.5% over this time due to large increases in household income and wealth, alongside record net migration.
The per capita picture, however, is much weaker and likely reflects the impact of monetary policy tigh...
Harbour Navigator: Time to revisit banking in New Zealand?
“The only thing worse than a very profitable banking system is a very unprofitable banking system.”
- Jonathan Mott, 2010, from his presentation to the Australian Senate Economic References Committee inquiry into Competition within the Australian banking sector
Major bank profitability as measured by return on equity is not exceptional compared to history or alternative listed investments.
Further strategic moves seem like...
Harbour Navigator: Understanding the RBNZ’s recent hawkish shift
The Reserve Bank of New Zealand (RBNZ) surprised many at its November Monetary Policy Statement (MPS) with a more hawkish view of recent economic developments. While we don’t necessarily view the skew in economic risks the same way, we recognise the high degree of uncertainty in the economic outlook and the importance of understanding the central bank’s point of view.
At the heart of the RBNZ’s hawkish shift are two factors: h...
Harbour Navigator: Harbour Listed Property Sustainability Survey 2023 - Taking care of sustainable business
Sustainability benefits for property owners: Research indicates that commercial properties with higher sustainability ratings have more consistent cash flow, higher occupancy rates, higher rents, and attract tenants with lower risk. Improving sustainability can enhance cash flow quality, reduce regulatory compliance risk, and improve market perception and brand value for listed property securities.
Harbour Listed Property Sus...
Harbour Navigator: The ‘Longroad’ to solar success
It's scorching hot in Phoenix, Arizona, where temperatures have reached record highs. This extreme weather is making it a perfect place for renewable solar energy developments like Infratil’s investment - Longroad Energy.
The new Inflation Reduction Act (IRA) includes many beneficial features to support clean energy developments (such as Longroad Energy) including tax credits, incentives for American-made components, and su...
Harbour Navigator: Sustainability themes from reporting season
Climate change analysis from companies is evolving on the back of new reporting regulation.
Cost of living pressures and labour market tightness are leading to staff pay increases and customer hardship initiatives for some companies.
Sustainability measures are being increasingly included as key performance indicators (KPIs) in executive pay practices.
Sustainability issues continued to feature prominently in the latest rou...
Harbour Navigator: Made in America
Technology is in place for the roll out of driverless cars and trials are underway. Head of Equities, Craig Stent got to test out the new Jaguar I-PACE first-hand in Phoenix.
There are various hurdles to overcome before we see more widespread adoption. Societal acceptance and regulatory restrictions may inhibit the uptake.
‘Made in America’ is back, with evidence of onshoring manufacturing occurring, however it is likely ...
Harbour Navigator: What you need to know about neutral interest rates
After declining between 1960 and 2020 due to growing working populations and decreasing productivity, neutral interest rates have stopped falling in recent years. This has prompted increased debate about where they go from here.
Neutral interest rates matter for financial markets because they help assess the impact of monetary policy and affect the valuation of financial assets based on discounted cash flows.
Future neutra...
Harbour Navigator: GLP-1 A healthcare breakthrough: hype versus reality
The GLP-1 drug class, which has predominantly been used to treat type 2 diabetes, has captured notable mindshare with healthcare specialists and macro investors due to initial findings from the Select study suggesting potential effectiveness of these drugs in addressing cardiovascular risk in obese patients.
The broader implications for obesity, cardiovascular events and other associated conditions within this drug class may ...
Harbour Navigator: Is a2 Milk the canary in the coal mine pointing to a Chinese structural slowdown?
Our recent visit to China has changed our view of the structural impediments facing our largest trading partner.
Demographic changes are impacting consumers’ medium-to-long-term outlook of the economy and they are adjusting their spending as a result.
The a2 Milk Company gave us a flavour last month of the impact from deteriorating demographics on the youngest age cohort.
After a multi-year COVID hiatus, we finally...
Harbour Navigator: New Zealand’s weakening export outlook to provide multiple challenges
Slowing global demand, led by a stalling Chinese economy, has seen New Zealand’s commodity export prices fall sharply in recent months.
Weaker export revenues will likely weigh on economic activity, supporting our view that further Reserve Bank of New Zealand (RBNZ) rate hikes are not necessary and causing a further deterioration in the fiscal accounts that may require additional bond issuance.
Export weakness is also likely...
Harbour Navigator: Decarbonisation progress – more than hot air?
New Zealand’s emissions have not been falling despite the rising number of climate commitments, but there have been some encouraging examples of action from large emitters in the market.
Fletcher Building has developed the country’s lowest carbon cement through substituting coal in the production process with alternative fuels, such as used tyres and construction waste.
Contact Energy is investing significantly in new renewa...
Harbour Navigator: After the inflation peak
Investors should gradually gain confidence in most assets, as pessimism in the outlook for the economy gives way to understanding that highly restrictive monetary policy has done its job.
Despite the range of risks for financial markets, falling inflation has certainly been a positive factor for broad investment returns. Up until recently equity markets have also enjoyed a period of generally better than expected corporate ea...
Harbour Navigator: Global trends in taxonomies and what it means for New Zealand
Increasingly, countries around the world are developing sustainable finance taxonomies to classify environmentally friendly economic activities and prevent false claims of sustainability (“greenwashing”).
Europe has taken the lead in establishing a green taxonomy, and other countries like Australia are also making progress in this area.
New Zealand is beginning to explore the possibility of implementing its own sustainable...
Harbour Navigator: How the megatrends influence investment opportunities
Harbour’s core equity portfolios have a “growth” bias. Our investment process has multiple steps which includes assessing key secular trends that are underappreciated. Some people call these themes megatrends.
Secular trends tend to be long-lasting, as they transcend industry shifts and cyclical economic activity, and ultimately lead to sustained growth.
At Harbour our core equity growth investment process has a focus on the...
Harbour Navigator: After the tech reset
Technology and biotech companies are delivering on revenue
After a period when share valuations adjusted to higher interest rates, share prices of fast growing companies are performing following positive announcements on growth
These sectors may be less exposed to a slowdown in household spending and investors may become more comfortable with increasing exposure
As has been well documented, the share prices of long-dated ass...
Harbour Navigator: Despite significant falls, NZ houses are expensive relative to incomes
Despite a 12% decline from last year’s peak, we think New Zealand houses are still significantly overvalued based on historically high price-to-income ratios and mortgage repayment costs.
The currently tight labour market is usually a positive influence on house prices but is currently being overwhelmed by very low rates of population growth, high mortgage rates and ongoing increases in housing supply. We expect this dynamic ...
The RBNZ seeks to “cool the jets”
NZ interest rates pushed higher this week after the RBNZ revealed it now expects to take the OCR to 5.5% given its greater concern about high inflation and a tight labour market.
While this action may bring inflation back towards its 1-3% target band more quickly, it may also push the economy into a deep recession next year.
As the economic damage from higher interest rates becomes more evident, we expect the RBNZ to bec...
Harbour Navigator: Another reason the RBNZ should slow hikes
New Zealand bank funding costs are likely to rise over the next 1-2 years as the Reserve Bank of New Zealand (RBNZ) unwinds its liquidity provision measures introduced in response to COVID-19.
As financial system cash reduces, banks will look to attract alternative sources of funding. Therefore, retail interest rates will likely be pressured higher, independent of any changes in the OCR.
We think this ought to encourage a more...
Harbour Navigator: Local or global share markets - where to invest?
In New Zealand, most of our wealth is invested locally in the property market, share market and in New Zealand dollars. There are many factors that have driven this, ranging from wanting to invest in companies we know and trust, a preference for “real” bricks and mortar assets through to ease of access. Though one could make a case today that the latter may no longer ring true with both direct global shares and global share fu...
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Banks can survive mortgage servitude, but business exposure provide tail risk
Unemployment, not house prices, is the most important determinant of bank asset quality; a key factor for bank profitability and creditworthiness.
For now, housing mortgage arrears are very low, and the banking system appears structurally well prepared for a typical household loan-loss cycle.
Benign outcomes on bank loan-losses could be challenged if the consensus view that we are facing an almost exclusively household loss cy...
Sustainability trends from the recent reporting season
Climate change action and disclosure improved as new reporting standards loom
Increase in companies adopting science-based targets
Uptick in employee turnover rates
Diversity and pay gap measurement improving
Sustainability remained front of mind in the latest round of company profit reporting with many companies showing improvements in their ESG (environmental, social and governance) practices. Some of the key trends we obser...
UK tax cuts prove unwelcome to fragile markets
UK bond yields soared after aggressive tax cuts, to be funded with increased debt, were announced by Liz Truss’s new Chancellor, Kwasi Kwarteng.
In just 72 hours, the UK 5-year government bond (gilt) yield rose by 1.2 percentage points to 4.7% and the British pound (sterling) dropped by 6% against the US Dollar.
The harsh market reaction highlights how far the market has moved from the Covid-era ideas of Modern Monetary Theo...
Harbour Navigator: Inflation moderating but not yet tamed
Inflation may have peaked, reducing the risks of severe monetary policy tightening and a deep recession.
Supply chains are partly normalising and slowing demand in most economies is reducing extreme pressures on prices.
Tight labour markets, however, are placing upward pressure on wages and the current high inflation rates mean that central banks may retain a tightening bias for some time.
Global economic growth has slowed mor...
Contact’s closure cuts carbon
Contact Energy has announced the retirement of a gas-fuelled power station
Contact’s direct carbon emissions expected to be reduced by 20% p.a.
Re-deployment opportunities will be available for affected workers to support a just transition
Generation shortfall expected to be met by new renewable energy, helping to achieve their climate strategy
With the proliferation of new climate change commitments made by governments and co...
Controlling inflation is a key pillar to calm markets
Central banks are focussed on bringing down inflation
The Reserve Bank of New Zealand amongst the earliest to hike rates and now others are moving rapidly
Sharp interest rate rises are now largely baked into financial markets
Lowering inflation is the best outcome for businesses and ultimately households
We think expectations of a cash rate of 4.6% by May 2023, is excessive although markets will continue to monitor inflation ...
The end of the “Great Moderation”?
Most economists expect historically high inflation to moderate over the next year, but the near-term outlook is uncertain.
Over the long term, changing structural inflation forces may create even greater uncertainty for investors.
The possible end of the great moderation – the period of relatively benign economic cycles - that has prevailed for most of the past 40 years - may see fixed income investors seek greater compensat...
Harbour Navigator: Lukewarm Plan for Global Warming
- The New Zealand Government has announced their emissions reduction plan for de-carbonising the economy through several policy initiatives
- Transport will play a key role in driving change through new light fleet and freight targets, supported by a ‘scrap and replace’ scheme
- Energy and agriculture sectors will receive significant funding to help de-carbonise and accelerate research into clean technology solutions
- Regulation and Government incentives will provide both positive and negative financial impacts to companie
Time to get real - Listed Real Estate, Rate Hikes and Real Returns
- While listed real estate returns may struggle early in central bank interest rate cycles, historically they have performed better as rate hike cycles mature
- REITs have the potential to offset the impact of higher borrowing costs with higher rents over time
- Investing in REITs is not just about generating real income but also long-term, low volatility capital growth
Central banks forced to prioritise inflation over growth
Inflation has risen sharply over the past year. What was initially expected to be transitory has become more widespread and persistent, with signs that price rises are being seen as the new norm.
The Russian invasion of Ukraine is adding to already-high global inflation, while also reducing growth prospects.
With inflation dangerously high, central banks (including the Reserve Bank of New Zealand (RBNZ)) are backed into a corn...
The Big Reveal: Pay Equity in New Zealand
- A new public registry of companies reporting gender and ethnic pay gap information has been launched
- Four NZX-listed companies currently report both gender and ethnic pay gaps in their workforces
- Strong alignment with the UN’s Sustainable Development Goals, although progress in New Zealand has been stagnant over recent years
The bond market is not signalling a recession
- Markets have aggressively baked in a sequence of interest rate rises as central banks shift to tackling inflation
- These rate rises are now front-loaded and may come quicker than expected
- This may pose risks for economic activity and continued market volatility. However, markets are not signalling a recession is likely
- After an initial flurry of rate rises, we expect a pause and more patience to judge the impact on activity and inflation
Uncertainty around hawkish central banks has led to volatility
- Global equity markets were strong in 2021 benefiting from accommodative central banks and record earnings growth to spur on returns
- Loose monetary and fiscal policy, implemented in response to the COVID-19 pandemic, has led to an increase in inflation, which central banks now need to combat
- Uncertainty around the exact extent of future interest rate changes has led to a volatile start to 2022 in markets
Exorcising New Zealand’s inflation demon
- NZ inflation has rapidly accelerated and the RBNZ has started to raise rates to exorcise this demon
- We think inflation pressures go beyond transitory and will require further policy tightening
- This carries risks for asset prices and the latest Omicron COVID-19 variant suggests some volatility is likely along the way
‘Long COVID?’: September 2021 New Zealand stock market reporting season net positive but impacted by COVID-19
- Results ahead of expectations
- COVID-19 continued to hit sales & costs, offset by pricing power for some
- Structural growth stocks continued to beat expectations
- Several capital raisings to bridge COVID and support growth
- Notable increase in focus by companies in improving their Environmental, Social and Governance (ESG) standings
- Net positive upgrades to profit forecasts post results with high single digit earnings growth expected for the next few years
COP26 in review, implications for investing
- COP26 concludes with some progress made but not enough.
- New Zealand updates emissions target and signs methane pledge.
- International carbon credit trading supported through resolving technical provisions in Article 6 of the Paris Agreement.
- Implications for corporates to address climate change risks given greater expected regulation and investor scrutiny in aligning with net zero targets and a 1.5-degree world.
What to expect from COP26
- Country level emissions reduction targets expected to take centre stage to ensure a 1.5 degrees scenario is within reach.
- Carbon trading and ‘leakage’ likely to feature given the adjustment mechanism proposed by the EU.
- Financing the transition will be an important focus, particularly for developing countries that require support.
Is there a COVID-19 endemic equilibrium for investors?
- At some stage the world may learn to live with COVID-19 and, while that may be hard to believe in the middle of a local lockdown, this pandemic may eventually morph into an endemic.
- From an investment perspective, we need to accept that this is likely and it will allow markets to continue to swing attention to other risks like climate change, inflation, interest rates, disruption, regulation, innovation and corporate earnings.
- That path may not be straightforward but two data points are encouraging. First the US and European rate of new COVID-19 infections looks to have peaked and, secondly, by the end of this year close to 80% of the world’s adult population are expected to be fully vaccinated.
Implications of an Evergrande default
- Some form of default looks inevitable for debt-laden Chinese property developer Evergrande
- We examine why markets don’t hold concerns that a default will put sand in the global financial cogs
- However, concerns are spreading to other developers which could increase volatility
Sustainability themes from reporting season
- Climate change disclosure is increasingly prevalent
- Diversity and inclusion considerations are growing wider in scope
- The focus on human rights is rising with inaugural modern slavery statements
The Fed can taper without tantrum
- As the US economy continues to improve, the US Federal Reserve (Fed) seems close to reducing its pace of bond purchases as part of its quantitative easing (QE) programme.
- Different to the “taper tantrum” of 2013, however, a reduction in purchases is widely expected and is not being associated with imminent interest rate hikes.
- US Treasury bond returns tend to be mixed prior to interest rate hikes but US equity markets generally fare much better.
- That’s not to say it will necessarily be smooth sailing for financial markets. Risks exist in many directions, but a well broadcast tapering may not be the largest concern.
Keeping the lights on
- Decarbonisation and keeping the lights on will need significant investment
- Investment needs a stable policy environment
- Policy risk may have lessened with reviews targeted at better information sharing
Real Estate Investment Trusts - Quality over quantity?
- Real Estate Investment Trusts (REITs) have delivered an attractive return relative to their lower volatility over the longer term
- The quality of New Zealand property returns has improved over the last 10 years with a higher weighting to industrial assets
- New Zealand REIT dividend distributions are now more sustainable, with most dividends now based on conservative available funds from operations definition rather than accounting definitions
The RBNZ “read the room” with a hawkish hold
- The RBNZ left the OCR unchanged yesterday given heightened health-related uncertainty.
- But with the central bank’s inflation and employment objectives met, the Monetary Policy Committee has a strong desire to reduce stimulus once this uncertainty passes.
- We agree that interest rates eventually need to be a lot higher, but health outcomes will determine when the tightening cycle begins. In fixed income portfolios we are positioned for the OCR to remain on hold while the COVID-19 delta variant outbreak unfolds, but for longer term yields to rise and inflation pressures to persist.
The Delta Blues
- We hope you are all keeping safe & well as we find ourselves back in level 4. We have done this before, and we can do it again!
- As well as the challenges of a snap lockdown, today has been one of the busiest days of the year for both companies reporting and the macro-economic calendar.
- Today the New Zealand equity market bucked the trend from markets overnight with equity prices recovering after strong local company results and AGM updates positively impacting some of our largest companies.
- Fixed income and currency markets, however, were more affected by the COVID-19 outbreak news, with the Reserve Bank of New Zealand (RBNZ) displaying considerable risk awareness in deciding not to proceed with a rate hike today that it was widely expected to make.
Mortgage rates rise, but households can manage.
- ASB increased all its fixed mortgage rates yesterday, including the highly popular one year rate by 0.36% to 2.55%. We expect other major banks to follow, likely marking the end of a multi-year decline in New Zealand mortgage rates.
- Many households will soon be exposed to these rates as almost 80% of outstanding mortgages are either floating (12%) or fixed for less than one year (65%).
- Further increases in mortgage rates are likely as the economic expansion supports a removal of monetary policy stimulus and higher bank funding costs.
- We think households in aggregate can manage higher rates. Debt servicing costs are historically low and there is some evidence that mortgage holders are currently paying off a greater proportion of principal, implying a buffer to rising rates.
Back to Core Banking
A virtual tour through Australian banking issues
- More tailwinds for the banking sector
- Medium term, the banking sector faces pressure to continue to invest heavily in their digital consumer platforms
- Differentiated strategies are appearing as banks rebuild their client focus
Accelerating down the sustainability road(map)
- The inaugural Australasian sustainability-linked bond was issued by Wesfarmers last week
- Sustainability-linked borrowing links a company’s interest payments to measurable sustainability targets
- Missing the targets would result in tangibly higher interest costs
Harbour’s Environmental, Social and Governance policy
Harbour’s Environmental, Social and Governance (ESG) policy encompasses our approach to responsible investing including integration into our investment decision making process, stewardship practices and industry engagement. This policy has now been updated to reflect our constantly evolving approach with key developments such as a new section on sustainability outcomes, our guiding principles on proxy voting and further explanation of our exclusions process.
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Today's Climate Change Commission release
The key changes from the draft report to the Government are:
- Historic emissions have been revised up – we are at a tougher starting point
- Lower uptake of electric vehicles forecasted
- Revisions lower the estimates of primary sector herd reductions
- Increased ambitions on waste
It’s not easy being green
- The Climate Change Commission’s final advice to the Government is due to be released next Wednesday. This follows a review of interested party submissions and feedback from the initial draft report.
- We do not see the key draft recommendations changing, but at the margin we might see some alterations to the Commission’s recommendations.
Are retail interest rates about to rise?
- Despite substantial increases in wholesale interest rates over the past 6 months, retail rates have mostly declined as the Reserve Bank of New Zealand has kept the Official Cash Rate unchanged and offered cheap bank funding through its Funding for Lending Programme.
- The Reserve Bank of New Zealand is now more confident in the economic outlook and forecasts a larger amount of interest rate hikes than markets currently expect, beginning in Q3 next year.
- As financial markets price the prospect of earlier and more rate hikes, increasing banks’ wholesale funding costs, retail interest rates are likely to rise, starting with 2-year and longer mortgage rates over coming months, while meaningful increases in term deposit rates may happen later and be more gradual.
REINZ data shines a light
- The housing market holds firm in first read post significant policy changes
- Yesterday’s Real Estate Institute of New Zealand (REINZ) data is the most significant indicator of the housing market since the significant policy changes introduced on 31 March.
- This relatively strong data suggests that it takes both supply and time to cool a housing market
Are the lights going to go out?
- Hydro lake storage is at about 60% of normal levels; low lake levels may provide risks to the near-term earnings of the electricity sector.
- Commercial electricity users on spot power pricing are facing significant cost increases.
- Dry conditions may mean we burn more coal and gas, which highlights the importance of more investment in geothermal and wind energy projects.
Inflation risks building
- Inflation is likely to surge through the Reserve Bank of New Zealand’s (RBNZ) 2% target in the coming months, reflecting mostly temporary factors that could easily reverse.
- But there is a risk that inflation becomes more persistent, something the market may be underestimating.
- We think medium-term inflation risks are skewed to the upside and have positioned portfolios accordingly.
Harbour Outlook: Markets balance higher earnings and yields
- Both New Zealand equity and bond market returns bounced back in March with the S&P/NZX 50 index returning 2.7% and the Bloomberg NZ Bond Composite 0+ year Index returning 0.6%.
- Globally vaccine programmes have gained speed, with the US and UK (alongside Israel) leading the way. The European vaccine rollout has been significantly slower, making re-opening difficult for many nations in the area as they battle rising infections.
- Following changes in New Zealand residential property “bright line” tests and tax deductions on investment properties, expectations of New Zealand’s official cash rate (OCR) increasing were pushed out, contributing to lower bond yields, as well as the New Zealand dollar weakening.
Still a large gap in New Zealand output
- The New Zealand economy shrank at the end of last year as the construction sector struggled to find the resources to continue to expand, while retail trade and accommodation activity dropped due to a lack of tourists.
- New Zealand is in a better position than many other economies, but there is still a gap between our potential output and where we are currently tracking, which is acting as a disinflationary force.
- It seems unlikely that the RBNZ will hike rate hikes in the next year; they have many other actions they could take before contemplating interest rate hikes.
- Longer-dated bond yields could be led higher by offshore developments as global growth beats expectations.
When will central banks react to inflation?
- Higher inflation and the prospect of a reduction in central bank support is becoming a concern among financial market participants.
- We think this risk is low given most economies have spare capacity that is keeping unemployment rates higher and inflation lower than central banks desire.
- The ongoing threat of higher inflation and reduced monetary stimulus, however, is likely to lead to choppy trading conditions as investors manage the transition away from the low inflation and falling interest rate environment seen in recent years.
- We hope that the following Q&A gives you an insight into our thought process.
‘Four More Years’
We’re staying
- Rio Tinto and Meridian have today announced an extension to the Tiwai contract through to December 2024.
- The government has not as yet needed to provide any support
- We would expect further announcements on project development with Contact progressing the Tauhara geothermal plant and Meridian developing their Harapaki wind farm.
Harbour Macro Research Day: Light at the end of the tunnel
- Harbour’s internal Macro Research Day is a chance to hear from external research providers, challenge assumptions and anchor our medium-term view.
- Highly effective COVID-19 vaccines and early rollout are allowing investors to look past the current acceleration in northern hemisphere cases.
- The New Zealand tourism industry is likely to miss international visitors over summer, however the rest of the economy is doing exceptionally well. Perhaps too well in the case of housing where Reserve Bank of New Zealand Loan-to-Value Ratio restrictions are coming to curb high-risk lending.
RBNZ to drive retail rates lower
- The RBNZ has confirmed that cheaper bank funding will be here in time for Christmas via its Funding for Lending Programme (FLP).
- This will provide fresh impetus for banks to lower lending and deposit rates.
- Lower mortgage rates will likely boost an already-booming housing market. Lower term deposit rates may encourage consumer spending and a hunt for yield.
Economic strength to challenge the RBNZ’s dovish stance
- Market expectations of additional Reserve Bank of New Zealand (RBNZ) stimulus, for instance moving to a negative Official Cash Rate (OCR), have been tied to continued cautious communication from the central bank. Interest rate markets today price an OCR of -0.25% in one year’s time.
- The economy, however, is in much better shape than the RBNZ expected, which presents a challenge to its uber-dovish stance and the prospect of a negative OCR next year.
- In our view, the likely launch of a Funding for Lending Programme (FLP) as part of its 11 November Monetary Policy Statement (MPS) further reduces the need for additional stimulus.
- We see the distribution of future interest rate outcomes skewed higher.
The further consequences of lower interest rates
- As market interest rates in New Zealand decline further, additional consequences are revealing themselves. The theme of accelerating progression of longer-term trends continues.
- Wholesale interest rates continue to decline, with the Government’s PREFU announcement being the catalyst this week, due to a $10bln reduction in the size of the Government Stock issuance program for the 2020/21 fiscal year. The five-year New Zealand Government bond now trades at a negative yield, joining the one and two year maturities. 35% of outstanding nominal New Zealand Government Stock is now in the “negative rate” club.
- This week the Auckland Council issued the longest maturity bond in New Zealand for more than fifty years. The ability of a council to issue 30-year bonds in the domestic market is a notable milestone in the ongoing development of the New Zealand capital market.
Negative cash rates – The afterburner for asset prices
- The RBNZ’s stated preference for a negative OCR, should further stimulus be required, has encouraged the New Zealand market to expect negative wholesale cash interest rates next year
- This forward guidance on the potential for negative rates has led to large declines in retail interest rates and is having a powerful and positive impact on all asset prices
- This week a New Zealand government bond closed with a negative yield for the first time
ESG themes from company reporting season
- Health and safety are being prioritised in response to COVID-19
- Companies are broadly improving gender diversity and pay gap disclosure
- There is a rising alignment with climate change reporting framework
Bond market takes note of RBNZ dovish shift
- We think the RBNZ reaction function has become more dovish with lower and flatter yield curves the primary goal in the face of persistent health-related downside economic risks.
- The Bank expanded its QE programme by more-than-expected last week from $60bn to $100bn and said it is prepared to implement a negative OCR alongside direct lending to retail banks at interest rates close to the OCR, if required.
- Interest rates have fallen in response, but NZ government bonds now look expensive versus their global peers and a sharp rise in breakeven inflation rates suggest that economic risks may lie in both directions.
Shadow banks shine light on mortgage deferrals
- Some of New Zealand’s non-bank mortgage lenders have provided detailed data that illustrates they appear well-positioned to weather an increase in non-performing loans when COVID-related loan deferrals expire
- Our various probes into the big banks indicate no cause for alarm, albeit we expect loss provisioning needs to rise and small to medium-sized enterprise (SME) lending trends need to be monitored
Are we ‘Thinking Big’ Again?
- Electrification of industrial and process heat makes sense
- Pumped storage would be a massive project, but could help achieve the Government’s 100% renewable objective
- Substantial challenges remain in terms of cost, engineering, and resource consenting
- Scoping study results unlikely to be published quickly with sector uncertainty to remain in the short term
ESG & COVID-19 – Did the long term add value in the short term?
- Whilst Environmental, Social and Governance (ESG) policies take time to impact investment returns, we present evidence that ESG policies added value in the volatile first half of 2020
- Companies with better ESG credentials fell by less when the market dropped in the first quarter of 2020 and kept up with the market when it rallied in the second quarter of 2020
- Companies with lower ESG credentials dropped more in the first quarter, recovered less in the second quarter and underperformed the market over the first half of 2020.
Harbour Market Survey: Cautious optimism
In our inaugural Harbour Market Survey, we asked almost 80 investment consultants, investors, brokers and banks some key market questions. Most respondents felt it was a good time to fix your New Zealand mortgage and that NZDUSD was likely to appreciate over the next three months, but they only marginally favoured adding riskier assets to portfolios – implying some weakening in the recent strong relationship between NZDUSD and risk assets. NZDAUD views were mixed.
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‘Blame it on Rio’
Key Points
- Rio to leave, another Think Big Project bites the dust
- Rio Tinto has announced the closure of the New Zealand Aluminium Smelter (NZAS) from August 2021.
- Short term, the biggest impact on earnings will be felt by Contact Energy and Meridian Energy with stranded generation in the lower half of the South Island.
- Is it time to move forward and focus on transmission investment and de-carbonisation?
A bold bounce
Key Points
- Many economies, including New Zealand, are re-opening and recovering faster than expected
- High growth rates are normal after such a large contraction in activity and the recovery, so far, is partial
- Ongoing policy stimulus is expected, given the residual uncertainty
Negative rates – An option for the RBNZ, but not its preference
Key Points
- The RBNZ continues to entertain the idea of a negative Official Cash Rate (OCR) to provide additional economic stimulus
- There is global precedent but the associated lower policy efficacy and financial stability risks cause much debate
- A negative OCR cannot be ruled out and keeping the option open is likely helping to anchor short-term interest rates and the NZD
- The RBNZ’s revealed preference for QE, however, is clear and an expanded Large Scale Asset Purchase (LSAP) programme remains most likely if further stimulus is needed
Large Fiscal Spending Promises
Key Points
- Budget 2020 revealed larger-than-expected potential spending in response to COVID-19.
- However, detail was lacking on many spending priorities.
- The accompanying larger bond issuance programme may prove difficult for the market to digest, placing upward pressure on government bond yields.
Will RBNZ QE help bridge the gap and how does it work?
What is the Reserve Bank of New Zealand’s (RBNZ’s) Quantitative Easing (QE) programme?After cutting the Official Cash Rate (OCR) by 75bp to 0.25% on March 16th, the RBNZ launched its Large Scale Asset Purchase (LSAP), or QE programme, just one week later. LSAP has a target to buy $30bn of government bonds over the next year; equivalent to 10% of Gross Domestic Product (GDP) and, at the time, almost 50% of outstanding bonds ma...
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Ethical investing: walking the talk
In recent times, perhaps more visibly prior to COVID-19, it has been satisfying to see growing interest in, and demand for, ethical investment products. Ethical is the term most often used by New Zealand investors[1], whereas fund managers like Harbour use terminology such as “ESG” (Environmental, Social and Governance) and others might refer to “Responsible Investing”.
Taxonomy issues aside, what one investor considers ethi...
QE in New Zealand – A rising tide lifts most boats
Key Points
- The RBNZ’s quantitative easing (QE), Large Scale Asset Purchase (LSAP) programme has kicked off to a very promising start.
- In a tug-of-war between massive Reserve Bank purchases and NZ Treasury issuance, the Reserve Bank is winning.
- The New Zealand Local Government Authority raised $1.1billion in new bonds issued today – a record amount.
- Along with better COVID-19 news in New Zealand and a rebound in equities, we are starting to see better activity in high grade NZ credit.
- The market is hoping this will flow through to the broader credit market. Early signs are encouraging, but the jury is out on the poor cousins at the lower end of the credit spectrum.
Panic doesn’t pay: Tips from professional investors
Harbour’s investment team has decades of experience in managing Australasian shares and New Zealand bonds. Whilst over time, investors generally experience favourable market conditions allowing us to generate positive returns, it tends to be the downturns that people remember most. The table below illustrates this, as New Zealand share market returns were positive for around three quarters of the years shown:
Annual returns...
COVID-19: Building the bridge across the void
Key Points
- Extraordinary global fiscal and monetary policies are starting to build a bridge across the void
- Markets are beginning to look beyond COVID-19 case trends, and towards solving the pandemic with tests, a new standard of care and vaccinations
- Quality companies, with strong balance sheets, are performing well
- This is a time to stay at home and be kind, it is also a time to pay close attention to discipline in investment decisions
Faster please, to avoid the void
As we all battle COVID-19, some spending is stopping, suddenly.
For many businesses it is like stepping into the void. Already in a few days New Zealand has over 27,000 wage subsidy applications. That is a lot and it’s just the start. Sadly, higher unemployment will happen as many of us battle in the grandstands against something we can’t see while we all wish the very best for our brave medical specialists at the front line....
How this could be different to the GFC
Key Points
- Headlines around COVID-19 outside of Asia have continued to worsen and, coupled with the oil spat between Russia and Saudi Arabia, have sharply reduced investment sentiment and created pockets of financial stress.
- While sentiment is clearly downbeat, we need to recognise that there is still a wide range of outcomes that can occur.
- In the event COVID-19 does result in recession, note all recessions have been different.
- While this volatility is unsettling, it is important to put this sell-off in historical context.
Surprise cuts necessary, but not sufficient
Key Points
- Overnight, the US Federal Reserve executed an out-of-cycle 50 basis point cut as financial conditions have deteriorated sharply over the last week.
- The closed circuit of declining confidence driving lower risk appetite, leading to increased financial stress and back to declining confidence, can be broken by government fiscal policy and monetary policy stimulus.
- We expect a concerted global effort across governments and central banks to support economic growth. New Zealand will be part of that effort.
Monitoring the US leveraged loan market
Investors have their noses to the wind for the source of the next crisis. The terrifyingly titled pile of debt, known as “leveraged loans”, could be starting to pong. At Harbour we remain vigilant, monitoring the US market, but taking comfort in the structure of markets down under.
Leveraged loans are simply private market borrowing by sub-investment grade companies. The US leveraged loan marketplace provides well over $US...
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Novel Coronavirus – What you need to know
Key Points
- Novel Coronavirus (2019-nCoV) is a more contagious coronavirus than Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), but fortunately, has a lower fatality rate so far.
- While we can look to SARS for the potential economic impact, China’s position in the global economy is far larger now than it was in 2002/03.
- Equity markets have typically rallied once the number of new cases peaks. We are not yet at that stage and expect volatility until that happens.
- We have added to some stocks with structural tailwinds that have been sold off as a result of the event. But otherwise, we are taking a vigilant stance continuing to emphasise longer term positive structural influences.
- This is continually evolving, World Health Organisation (WHO) situation reports are being produced daily and are available online. In addition, cases are being tracked in real time here.
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Fiscal friendliness extends to housing
Key Points
- The Reserve Bank of New Zealand (RBNZ) has found a fiscal friend in the past two months. Following the $12bn of capital spending announced in the Government’s December Budget, Kāinga Ora (Housing NZ’s parent) plans to borrow an additional $4bn to help its state housing efforts.
- While there is uncertainty about delivery, any additional government capital spending is likely to add to inflation via increased construction demand.
- RBNZ rate cuts are less likely as a result and activity indicators are already picking up. Rate hikes remain a long way off however, with still-low inflation suggesting the RBNZ can adopt
Harbour Macro Research Day: Mixed Signals
Harbour’s internal Macro Research Day is a chance to hear from external research providers, challenge assumptions and anchor our medium-term view.
The local outlook is mixed. Monetary conditions have eased and should support a recovery, but structural impediments mean business confidence may not pick up.
The global picture has improved which makes additional central bank support less likely.
Harbour held its bi-annual interna...
Calling time on TDs?
Traditionally, term deposits have been a popular strategy for many retirees and Kiwis who weren’t quite sure about how to choose or access other investments.
What has happened with term deposits?Around 11-12 years ago, before the Global Financial Crisis (GFC), New Zealand’s Official Cash Rate was sitting at 8.25%. The official cash rate tends to influence the rates which banks offer on, amongst other things, Term Deposits. A...
Electricity demand smelting away?
Key points
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The probability of closure versus 2013 has increased
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Weak commodity prices, energy and transmission costs are the main issues
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As in 2013, the electricity industry may bow to Rio Tinto’s pressure, but possibly not the Government this time
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Higher volatility in share prices and wholesale electricity prices is likely near term
Responsible investing - have your cake and eat it too
Increasingly, we have found that people are asking us about responsible or ethical investing.
This interest comes from two different generations of investors. The baby boomers tend to be retired (or approaching retirement) and they remember the hippie era; their focus is on leaving a better world for their children and grandchildren. Millennials are in their late 20s and early 30s and are really starting to hit their economi...
NZ Monetary Policy: Diminishing Returns
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The Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) at 1.0% at its OCR Review this week, surprising the market with a rather sanguine tone, given the deteriorating global backdrop.
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The RBNZ noted that both fiscal and monetary policy have scope to provide additional stimulus.
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As the OCR plumbs new lows, questions are being raised over the efficacy of additional rate cuts.
4 sustainability trends from the latest company reporting season
Key points:
- Sustainability disclosure has improved
- Key focuses include climate change, diversity and waste
- Real world impact alignment on the rise
a2 Milk Steps Up Market Development
Source: Weekly Times
The a2 Milk Company reported on earnings last Wednesday. In spite of net profit 47% ahead of last year with a 41% increase in revenue, the market was disappointed by reduced margins, reportedly due to increased spending on marketing and, as a consequence, the price has fallen.
a2 spent more on marketing and product development than expected
We see this as building the foundation to be a global leader in ...
Payments: The Disruption of a Two Trillion Dollar Industry
Key Points
The two trillion-dollar global payments industry is forecast to grow 9% p.a. through to 2022
Chinese companies are leading payments innovation and expanding globally
Disruption in the payments industry is being driven by technological and regulatory change
The global payments industry is one that sits quietly underneath the world’s economies. Generally, businesses facilitating payments have been very successful thr...
Banks make a start on new capital
A new capital security issued on Tuesday night by Westpac Banking Corporation (Westpac) has highlighted the lack of higher-yielding opportunities available for New Zealand-based investors.
Banks fund the loans they make from deposits, bonds and shareholders’ contributions. In Australia, that’s also the order in which funds are repaid in the event of default. To go into further detail, there’s also a class of securities that...
Interest Rates Race to Zero?
Yields on fixed interest securities, which have been falling sharply all year, took another surge lower last week. The 5-year swap rate, a good proxy for market rates in New Zealand reached 1.36%, down from 2.20% at Christmas 2018 and 2.65% a year ago. That’s a record low level for NZ bond yields. The primary catalyst last week was a signal that the US Federal Reserve is close to cutting rates. They are joining the central ban...
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Responsible investing and equity returns
There is a growing awareness that stock returns are influenced by Environmental, Social and Governance (ESG) considerations. As a long-term proponent of incorporating ESG factors into our assessment of companies, Harbour is delighted to have been involved in Armillary Private Capital’s annual review of returns of the NZ listed sector for 2018 that was released last week.
This is Armillary Capital’s ninth annual Return on Cap...
Harbour Macro Research Day
In recent years, Harbour’s internal six-monthly Macro Research Day has been an important part of our research calendar. It provides an opportunity to undertake a thorough review of the medium-term outlook for the macroeconomy and its implications for fixed interest, equity and multi-asset portfolios.
Our Macro Research Day last week commenced with presentations by economists from two of New Zealand’s largest banks discussing key drivers of the New Zealand economy. This included business confidence and the potential impact of the Reserve Bank capital requirements which has recently been one focus of our research agenda.
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Bond yields hit record lows; but a rate cut is not a done deal
New Zealand government stock yields fell to record low levels across all maturities last week, as the Reserve Bank acknowledged the weaker global economic outlook and the ensuing risks to the domestic economy. We think:
The economy has slowed but is still growing.
Bond yields appear to be pricing in a recession, which seems unlikely.
Rate cuts in New Zealand are not a done deal.
The decline in yields has been dramatic this ye...
Responsible investing extends beyond a green label
Contact Energy has announced its intentions to raise capital via a “green bond”.
A green bond is a debt security that has been verified to be backing assets, or projects, that have positive environmental or climate change benefits.
Green bonds can bring societal benefits by facilitating funding for projects with positive environmental impacts. Just as credit ratings indicate the likelihood of a bond defaulting, the green ...
Australian Royal Commission: Final report shakeup
After a year long review the Hayne Royal Commission (RC) into Misconduct in Financial Services has laid out recommendations. This reshaping of the financial services industry has significant implications and received strong political support, ahead of a likely election by 18 May 2019. It is possible that the Labor Party may have a harsher interpretation of potential changes than the RC recommends.
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Core NZ inflation pressures, lifting towards 2 percent
This week saw the release of NZ CPI inflation for Q4 2018. While headline annual inflation measure remained below 2%, the details showed core underlying pressures a little stronger than expected and continuing to lift to target. Rather than sparking any immediate change in policy direction, in our view, the CPI release will see the RBNZ continuing to “watch, worry, and wait”.
Leading into the CPI release, the market had been...
US earnings season delivers, but raises questions about future growth
Q3 US Earnings season was strong with 410 of the S&P 500 stock index beating consensus expectations. What wasn’t so strong was earnings guidance, which has led the market to downgrade future earnings expectations. While the outlook for US earnings looks less certain, we take some comfort from macroeconomic data which paints a solid picture of economic expansion.
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The Third Scenario – The End of Goldilocks
While the RBNZ expects to keep the OCR on hold through 2019 and into 2020, in their past two Monetary Policy Statements they have outlined two alternative scenarios: one with stronger inflation pressures; and another with softer economic growth. In our view, the market is currently underestimating the chances of a third scenario, which is a combination of both stronger inflation pressures and softer economic growth.
One of th...
US mid-terms election results: it’s now Blue and Red
With Andrew Bascand on a company research trip in Denver, Colorado, he has shared his on the ground views of the US mid-term election results and their implications.
My impression is that the US equity markets are fairly sanguine following the US election result because right now it is not about the politics – the economic data remains helpful and on track for the economic expansion to continue through 2019. The mid-terms ou...
Harbour Navigator: Postcard from China - The eCommerce growth model
I visited China last week and met with companies and commentators to dig beneath the data and get a sense of the current issues.
We visited many malls and shopping centres. In particular we went to mother and baby stores to experience the consumer in action, and witnessed the new eCommerce model. We also visited “wet markets”, hired bicycles with WeChat, and saw progress with a2’s new Chinese-labelled product. We saw first-ha...
Continued growth of responsible investment in New Zealand
The Responsible Investment Association Australasia (RIAA) has recently published their fourth annual New Zealand Responsible benchmark report[i] that shows the size and growth of responsible investing in New Zealand over the 2017 calendar year.
Harbour is delighted to have been included for the third consecutive year as one of four domestic asset managers that are using a leading approach to Environmental, Social and Governa...
Harbour Navigator: Regime Change at the RBNZ
The path of least regret for the RBNZ appears to be letting core inflation rise above 2%.
A broad interpretation of the mandate motivates actions to support growth and business confidence.
As the new regime beds down there may be more volatility in the rates and FX market, with a new voting committee still yet to come in 2019.
In last week’s Monetary Policy Statement (MPS), the RBNZ surprised markets by shifting the projected ...
Harbour Navigator: Deflationary risks in New Zealand abating
A key theme for the New Zealand economy in 2018 has been the potential crossroads facing the economic outlook. For the past 5 years, we have seen strong economic activity and low inflation keeping interest rates low and asset prices high. However, looking forward there are signs that economic activity is moderating at the same time as inflation pressures are emerging.
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Tariff Wars
A muted global market reaction so far?
With no further escalation, the implications for New Zealand from the current US-China tariff war are likely to be limited. Any escalation, however, will have a significant impact on global growth, company earnings, the stock market and the general appetite for risk. Already, some sectors may be more impacted via supply chain disruption, competitive pricing changes and the economic spill...
Banking sector under the spotlight
An Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry has started to hear evidence. The so-called Hayne interim report into banking misconduct won’t be issued until 30 September though, unlike previous reports into the banking system, this inquiry is in the full public glare and, with more than 3,000 submissions, we can expect Justice Hayne to highlight further evidence o...
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How active management can provide a solution to technological disruption
The impact of technology is one of the most exciting aspects of being a professional investor. Technology can enable a business to significantly enhance its service offering, improving customer service and hopefully making an increased profit along the way – a win-win.
Disruptive technology, however, is when technology, or the convergence of multiple technologies, is sufficiently powerful enough to disrupt existing companies ...
A New Reserve Bank Governor and Policy Targets Agreement
Adrian Orr started yesterday as the new Governor of the RBNZ, and earlier this week, signed a Policy Targets Agreement (PTA) with the Minister of Finance, Grant Robertson. As widely expected, the announcement included many of the outcomes of Phase 1 of the Government’s RBNZ Review; reaffirming the RBNZ’s position as a flexible inflation targetter; adding a dual mandate of “supporting maximum sustainable employment”; and, shift...
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Trade Wars...Or Negotiations?
While many of the details of the US Government’s proposed trade tariffs directed at China (aimed at reducing the US’s trade deficit with China) and China’s reciprocal tariffs, are yet to be made public, the immediate response is to increase uncertainty for investment markets.
Investment markets have initially interpreted a break out of a trade war as being negative for growth and as being inflationary.
In Harbour’s view, the...
Harbour Equity Update: a2 Milk, Fletcher Building and CBL
This report will discuss three specific stocks (a2 Milk, Fletcher Building and CBL), as investor interest in these stocks has been particularly high recently.
February is often a busy time for investment announcements, and this year has carried a number of surprises.
In the month of February, provisional return data indicates Harbour’s active NZ and Australasian equity funds and mandates, out-performed the market benchmark ...
A Prudent Response to Expensive Housing
With 60% of Australian bank lending housing related, banks are bound inextricably to the property cycle. Unlike the worst-hit global geographies, the Australian household did not go through a period of deleveraging post-GFC, as housing credit continued to outpace income growth. With this backdrop, regulators are now doing their utmost to increase banks’ resilience and the banks too are chipping in.
There is not only one Aust...
Xi's China: More of the same, or big changes ahead?
In what is undoubtedly the most significant change of global leadership in 2017, President Xi Jinping of China has consolidated his powers further into the next five-year term.
Source: Xinhuanet (official press agency of the People’s Republic of China)
Xi is now ranked as one of the most influential Chinese leaders since the Cultural Revolution and has staffed the Politburo Standing Committee with five close allies. The Stan...
A new NZ Government: Market Implications
After a long period in opposition, we now have a Labour-led government in coalition with New Zealand First, and with support from the Green Party. The most significant initial market reaction has been a fall in the NZ dollar by around 2 percent and NZ share market by 1 percent on the open, as markets priced-in the possibility of a deterioration in business confidence and nervous overseas investors. This Navigator will set out ...
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NZ Election: Business as Usual
After the hard-fought NZ election campaign, markets are still left with some political uncertainty, with no
clear government formed on election night.
As the political parties enter coalition negotiations, an eventual National-NZ First Government appears
more likely than Labour-Greens-NZ First. However, it is still far too early to call. Consistent with the
last 8 MMP elections in NZ, it will likely take some time for a Gover...
NZ Election: Down to the No.8 Wire
The New Zealand election on 23 September may come down to the (No. 8) wire. By international standards, both National and Labour-led governments appear relatively centrist, without large policy differences. However, New Zealand equity market valuations are full, meaning that the market may become increasingly sensitive to changes in macro-economic settings, uncertainty and change. Some investors may want to be patient and see ...
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Investment Implications from Electric Vehicle Momentum
It has been hard to miss recent headlines relating to the progress of electric vehicles (EVs) and the
phasing out of the internal combustion engine (ICE) that powers the majority of today’s cars.
In May, Daimler announced the funding of its first European battery plant for its future Mercedes
EVs. Last week, Volvo announced that all its new-model cars will have an electric drivetrain by 2019;
a mix of hybrids and pure EVs. Ov...
RBNZ: Inflation, What Inflation?
At yesterday’s Monetary Policy Statement (MPS) release the Reserve Bank of New Zealand (RBNZ)
genuinely surprised financial markets, by assessing that the economic data received since February had a
neutral impact on the appropriate stance of monetary policy. While in the lead up many commentators
had focused on the recent jump in annual Consumer Price Index (CPI) inflation, the RBNZ’s response
could be summed up as “what infl...
Beware a 2019 Recession
Some superstitious investors worry about the chance of a global recession in 2017. They figure that the stockmarket crash in 1987, Asian crisis in 1997 and start of the GFC in 2007 make this the obvious year for troubles in markets. While it is difficult to find an economist that will forecast a recession, the maturity of the business cycle does warrant some caution. However, first we need to see more signs of consumer pr...
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