Theory Time--Kiwi Style

I have had an investing soft spot for New Zealand for several years now. I have been out of the country for clients, portfolio-wise, for several years now and imagine I will be back in at some point but not yet. The country has deficits galore due in part to limited resources (meaning they need to import a lot of basics goods) and easy funding due to high interest rates. The economy has been contracting for several quarters in what I believe will turn out to be a cyclical event (this is easy to say now as I do not have clients in).

Given the size of the country and the size of the population (about 4 million people) I imagine it will always have a large current account deficit. That has not prevented kiwi equity markets from doing well in the past and I believe they can do well in the future but at 8 to 9% of GDP depending on when you look but the current account will always be a yeah-but for some people.

One way to overcome the yeah but might be with the publicly traded port stocks. I am aware of two Port of Tauranga Limited (POT in New Zealand and PTAUF in the US pink sheets) and South Port (SPN in New Zealand and SPNZF in the US pink sheets). Neither one trades a lot so with some patience an investor could accumulate some shares but a trader should leave them alone.

New Zealand will have to import a lot of stuff for many years to come with a lot of it coming from across the Tasman. The more goods imported the more revenue for the ports. The current account deficit potentially benefits the ports in terms of traffic. The chart might corroborate the thesis as Port of Tauranga has had a much better year than the benchmark NZ50 index. The chart for SPN is a little spottier due to low volume but it is down a little over 20% which is also much better than the NZ50.

 

The bigger macro for New Zealand is that it is a small country on a different economic cycle than the US that has often been a proxy for risk taking. While New Zealand will obviously never play a dominant role in the world economic order its farming and relationship with China offer the potential for it to play a larger role in the world economic order. Even if that does pan out the country will still import a lot of basics.

I don’t own either of the ports, I just starting thinking about this on Sunday as I watched the Patriots playoff hopes flush but the concept is intriguing and worth learning more about.