Trend favours technology, financial services

Friday 2nd March 2001

New Zealand investors need to take a wider view than their backyard if their investment strategies are to work in a global scene, writes PETER V O'BRIEN

GLOBALISATION

A common New Zealand attitude to the globalisation of business and financial markets may confirm a reality TV programme's point that people can go funny in the head when isolated on islands thousands of kilometres from anywhere.

Isolation makes issues vitally important on the islands when they would be minor in mainstream communities and the isolated may laud their simple lifestyle while hankering for the comforts of civilisation.

Such schizophrenic attitudes often appear in New Zealand in an economic and business context. Exporters' breakthroughs in overseas markets are applauded while the entry of some companies and international financial muscle to New Zealand are deplored.

Erosion of the currency is disliked but nationalistic lips are licked at the prospects of more high-spending overseas visitors. Much is made of our place in the world, although reality suggests we are bit-players in the global theatre.

Resistance to globalisation, or internationalisation, is not unanimous but finds favour with significant numbers in the community.

Even the latter have to accept that, for example, New Zealanders are among the world's biggest users of the internet and are enthusiastic subscribers to overseas-based pay-TV where programming may have minimal New Zealand content, apart from sportscasts. The latter phenomenon sits strangely with criticism of the overseas content of local free-to-air public TV.

Even private investors can be ambivalent about the local versus international issue if they lament some apparent loss of economic and financial "sovereignty" while welcoming increased overseas participation in business and investment markets.

They cannot have it both ways in these days of a communications-based global village where information dissemination and market decisions are instantaneous. Although barriers are often raised, there has been overseas investment in most countries, including New Zealand, for many years.

It should also be noted, from the viewpoint of private investors, that New Zealand is a minor player in world investment markets.

Unfortunately, our politicians, in particular, have fostered a view that New Zealand is important in the world. It is fair to say, without NBR Personal Investor concentrating on political issues, we are important when other countries decide it is appropriate.

UN peacekeeping operations are an example, as are other situations where it is useful to have small countries "on board" for particular issues.

We did not rank when the US and UK decided, rightly of wrongly, to bomb Baghdad again. Big operators in international politics carry the weight in those arguments. New Zealanders' views got publicity only in New Zealand.

A similar situation is seen in the publicity of New Zealand investment markets. While it is a function of the daily media to be a "court of record" for local corporate activity, less space and time is often given to the profit outcomes of major international groups than to some companies that earn less in a year than many individuals.

Personal investors have to rely on reports from specific companies, or from managed funds, to find out how their investments have performed.

That is inadequate when investment as well as business in general operates on a global basis.

NBR Personal Investor noted last month (Feb 2) the phenomenon of globalisation was unlikely to slow down. Many underdeveloped countries, particularly in Eastern Europe and China, would affect international business and there would be greater emphasis on the knowledge industries in this decade.

The discussion was intended to include some comments from international broker Credit Suisse First Boston's (CSFB) report The New Millennium Project but space limitations forced their exclusion. That publication examined the "implications of the communication revolution and the emerging new economy" on the outlook for a range of industries.

The industry analysis is less relevant to the scope of the current discussion but wider issues related to globalisation as a result of the "communications revolution" deserve examination.

In answer to the self-posed question - are today's changes unprecedented? - CSFB said no. "Endogenous [growing or originating from within] technological growth is a longstanding phenomenon," it said.

The firm differentiated the knowledge economy from earlier technological growth, saying the IT revolution enhanced every other technology invented. The information revolution was as important as the agrarian revolution and the industrial revolution.

From an investment viewpoint, people should not ignore technology, because technology stocks accounted for 22% of the US Standard & Poor's index. The firm indirectly confirmed the trend to globalisation when it said "there are three clear industry winners that are global, on-trend demographically and knowledge-based - technology (including telecoms), healthcare and financial services.

The next section, comparing the Australian and New Zealand sharemarkets, refers to the banking industry in Australia briefly, but the expansion of banking and general financial services is a worldwide trend and there is no longer a demarcation between traditional banking and other forms of finance, such as insurance and managed funds.

Technology allowed the financial services industry to globalise and will accelerate the process.

New Zealand personal investors would do well to note the trend and to ensure they have positions in the financial services industry and technology, either directly or through an appropriate managed fund geared to these growth industries.

Major players in technology and knowledge-based industries have moved to strengthen their activities through takeovers and alliances.

A significant development occurred in January when the world's biggest internet provider, America Online, merged with massive media group Time Warner in a $US124 billion transaction.

Merging a giant in the internet with one in film, TV, music and publishing was a sign for the future and advanced the process of globalisation to a marked degree.

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