Comment: What does it all mean?

Philip Macalister

Wednesday 17th September 2008

I don't think anyone really knows what the crisis on Wall Street really means to investors in New Zealand at the moment.

There are though a few thoughts to take out of it already. The first is that this is probably a once-in-a-lifetime experience and one where we can all learn things which will help us be better investors.

What's happening on Wall Street makes our little finance company mess look piffling. One parallel thought is that it reinforces the necessity of having your money well spread across asset classes.

Wall Street is very much an issue in one sector, investment banking, rather than an across the board economic meltdown.

Rushing to hasty decisions and dumping shares or running from our trading banks is a meaningless reaction at the moment - it's just too late.

I hear people questioning whether our banks are at risk and people should pull their money out. No way. New Zealand banks are in great shape.

What's the bigger risk? Putting your money in the bank and being worried that it falls over, or stuffing your investments under your mattress and hoping you don't get robbed?

I'll take the bank thanks!

Perhaps the hardest hit group are people with debt, this includes homeowners and companies. There is no doubt that the cost of borrowed money from offshore will increase or stay high. Consequently lower interest costs aren't looking that promising.

The plus is that most of the companies listed on the NZX have relatively low gearing levels, therefore the impacts should be minimal.

For homeowners the situation may not be so good, especially as there is more than $40 billion of debt that comes up for refinancing in the next six months.

The best advice is to sit tight. If you are invested and your assets are spread appropriately then your asset allocated should be working for you.

If you are brave and want to go looking for opportunities, I suggest there will be plenty out there. The trouble is you may not know if the opportunity is a good deal until the crisis has washed through the system some more.

What are your thoughts? Send them to me here

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