NZIJ 124 - September 2007

Credit woes
The sudden volatility in the markets has left a lot of people asking ‘What is going on?’, over the last few weeks. Back in July we were wondering what the Reserve Bank Governor was going to do with interest rates; the fact that he announced another increase but at the same time signalled the end of the rising cycle caused the NZ currency to come off its highs but this effect was very quickly overtaken by the fear in international markets associated with the US sub-prime mortgage market. The results of this have been apparent in the unwinding of carry trades that caused our dollar to tumble and the sharemarket to stumble. A flight to perceived ‘safer investments’ means the world’s financial markets are facing a possible credit crunch - where credit is hard to find - which has downstream implications for economic growth.
In New Zealand the finance companies have also come under closer scrutiny as Nathan’s Finance collapsed and the possibility is there of more to come. This becomes even more probable as investors take fright and become more reluctant to use finance company investments - a self-fulfilling prophecy.
What is very evident is the lack of financial knowledge in the public in general. A quick glance at a prospectus to determine if the loan book is diversified across borrowers and sectors is a basic precaution. If you require expert help with your investments please call Fritz de Boer on 0800 90 60 90 or email him at fritz@nzij.co.nz.
We continue our emphasis on environmental issues and investment (see lead article). Also, as is pointed out by the commentator from Platinum there is potential for a major mania to develop in ‘green’ investment.