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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.
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Harbour Team | Posted on Mar 13, 2020
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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.
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George Henderson | Posted on Mar 4, 2020
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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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Simon Pannett | Posted on Feb 13, 2020
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NZ Monetary Policy: Diminishing Returns

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.

The RBNZ noted that both fiscal and monetary policy have scope to provide additional stimulus.

As the OCR plumbs new lows, questions are being raised over the efficacy of additional rate cuts.

This note highlights potential i...

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Hamish Pepper | Posted on Sep 26, 2019
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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...

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Simon Pannett | Posted on Jul 18, 2019
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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 ...

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Simon Pannett | Posted on Feb 15, 2019
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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...

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Mark Brown | Posted on Jan 25, 2019
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Harbour Investment Horizon: Fiscal Policy Outlook

There is growing coverage in the media that a slowing economy could force a fiscal tightening to stay within the government’s fiscal responsibility rules.
There is little evidence that the market is concerned with this risk, with the New Zealand government bond yields trading below the US for the first time in 25 years.
While providing important political discipline, there is also some flex in the fiscal responsibility rules, ...

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Christian Hawkesby | Posted on Aug 17, 2018
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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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Christian Hawkesby | Posted on Aug 1, 2018
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The Changing Face of the New Zealand Credit Market

Over recent years the New Zealand credit market has been going through something of a quiet revolution. The borderline between bank lending and fund management is becoming blurred. Fund managers are stepping into areas traditionally dominated by banks, as regulatory reform has imposed higher capital costs on banks. Fund managers are broadening their investment choices and the range of bonds issued has become more varied. There...

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Mark Brown | Posted on Apr 30, 2018