The Other Land Down Under

By Roger Nusbaum | August 19, 2008 | 1:08 PM | 3 Comments

Part of the process for international investing is knowing when to reduce or avoid a country. But even if you are away from a country now, that does not mean you should not still keep tabs on what is going on because at some point you may want to go back in.

I love everything about New Zealand. I have been there and if, as Lewis Black said, they all hopped off to push it closer I might even move there (access to healthcare becomes a potential issue in old age). The future for the country as I see it is that they become more globally relevant due to food production and free trade with China. As food needs increase and China continues to ascend it would seem that New Zealand is in the catbird seat for this.

That all sounds great but there is a lot between here and there and to be clear my opinion about where NZ is headed is just that it is an opinion that may be right or wrong.

The current reality is that the economy is slowing down creating the likelihood that the central back will have to cut interest rates (they have one cut under their belts already). The country has a current account deficit that seems like it has been hovering around 9% of GDP forever. In practical terms I don't think there can ever be a surplus because of limited resources and such a small population (about 4.1 million).

On the ground, real estate prices had a bit of a flurry a while back and have come off a lot since (like many other places) and another dynamic is that many upwardly mobile younger people hop across the Tasman to Australia to start their careers.

I believe a rosier future comes from the agricultural sector and farms become ever more efficient and as the country works through what looks like a cyclical downturn.

The bigger macro here is that the focus on farming (about 12% of GDP) makes it a different type of economy than the US' service based economy. A different type of economy makes for better diversification than buying another country that is also service based.

Stocks are down a lot already and I believe most, but probably not all, of the decline is in but there is visibility for currency weakness to continue. One possibility might be longer dated sovereign debt. The thinking there being that short rates go down causing the the currency and longer rates to go down but longer dated paper can appreciate in price to offset some or all of the currency decline but better still might be to wait a year.

One Other Point Sorry, forgot; one appealing aspect about New Zealand that is also true of many other countries is that there are fewer moving parts meaning there is less to understand. The decision to buy now or wait is actually much simpler than with the US and even many European countries. Submitted by Roger Nusbaum on Tue, 2008/08/19 - 2:46pm » reply |

Investment? How do I invest in the region? Through ETFs? Is there a way to get targeted exposure? Submitted by Anonymous (not verified) on Tue, 2008/08/19 - 2:36pm » reply |