New Zealand will suffer from "credit rationing" when the full
effects of the US financial troubles grip the world, but its
sharemarket is better placed than other world markets.
Research by broker ABN Amro Craigs said while the country
would not be immune to the global credit crunch, the
sharemarket had attractive low company valuations, good
dividend yields and the prospect of lower interest rates.
"Our cost of funding will rise as credit spreads [margins]
widen overseas, but our equity market may outperform in a
global context," the ABN research said.
ABN broker Peter McIntyre said the southern hemisphere
finance sector was not caught up in the sophisticated
financial instruments which have caused the demise of some of
the largest US companies and banks through exposure to
property and mortgages.
Earlier this month, the Federal Reserve bailed out mortgage
giants Freddie Mac and Fannie Mae and this week's bankruptcy
of Lehman Brothers, the fourth-largest US investment bank,
had shown how little exposure was held by the finance and
banking sector in New Zealand and Australia.
Mr McIntyre said underpinning of struggling US companies by
the Federal Reserve would only prolong the uncertainty of
markets.
At some point, "the piper had to be paid" when company after
company was propped up with borrowed money.
"There's a certain amount of credit in the world, just as
there's only a certain amount of capital," Mr McIntyre said.
New Zealand had been skewed in recent years with the rise and
rise of property prices, but he believed that, during the
next 18 months to three years, property would underperform
while the equity markets would move to "outperform".
"There's no doubt we will suffer the effects of credit
rationing in the future, with higher interest rates and
rising unemployment," he said.
Economic growth was slowing in Europe and the UK, commodity
prices were down and affecting New Zealand exports, and with
Australia, our biggest trade partner, also slowing in growth,
it would similarly have a negative effect on exporters, he
said.
However, Mr McIntyre said a falling dollar would assist
exporters as would lower interest rates.
Households would similarly have some gains from tax cuts and
falling fuel prices.
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