Andrew Bascand and Christian Hawkesby on New Zealand | Harbour Asset Management | Video

Transcript

With Europe is still in the throes of the debt crisis, we don’t hear much good news about the economy. However, New Zealand has recorded solid growth for the last few years. Andrew and Christian explain how emerging technology sectors are supporting New Zealand’s traditional export industries, discuss the central bank’s influence on the country’s stability, and outline how this story is affecting the New Zealand equity market.

World Finance: Andrew, let’s begin with the big picture for the New Zealand economy.

Andrew Bascand: Well, the truth of it is the New Zealand economy is in good shape. And the foundations of that shape really started almost three decades ago, when we had our own financial crisis. We nearly defaulted on our debt.

So, we then spent the best part of a decade putting in place the structures and productivity improvements that we needed to, and since then  the economy has been more productive, more flexible, and it’s opened its arms to the Asian economy. We’re four and a half million people: we’re maybe not that important to the world economy, but the world economy’s important to us, and the economy’s going well.

World Finance: You say you’re not important to the world economy, but you do have very important export sectors. What are the sectors driving economic growth in New Zealand?

Andrew Bascand: You know, that’s very true. Clearly New Zealand exports renewable resources to the world: water and sunshine. Obviously, we create protein, and we’re exporting protein to the world. But, people maybe think too much of just those sectors.

The truth of it is, we have a vibrant technology sector. A lot of bright Kiwis have been around the world, they’ve come home, and they’ve started globally relevant companies that are doing really well.

The final thing about our growth at the moment is that we’re rebuilding our second-largest city. Christchurch was devastated in 2011. Tragic. $40bn will be spent over the next five to 10 years rebuilding that city. It’s started today. And guess what? That money is coming from global insurance companies.

It’s very relevant: $40bn is 25 percent of our economy. So, we’ve sort of underwritten our growth, through being attached to Asia, and having this rebuilding story.

World Finance: You both began your careers with the New Zealand central bank, so, Christian: what has that done to improve the economy’s stability?

Christian Hawkesby: New Zealand has really been a pioneer in providing the central bank an inflation target and the independence to achieve that. That happened back in the late 80s, among a number of other macro-economic reforms which have really provided a stable macroeconomic backdrop over the last 20 years now.

Added to that, the reserve bank has been very focused recently on ensuring that banks are well capitalised and have good liquidity positions, and that’s really helped the New Zealand banking system weather the global crisis in a much better shape than North America and Western Europe.

World Finance: Andrew mentioned the connection you have with Asia, especially China. Tell us more about that relationship.

Christian Hawkesby: Absolutely. It’s really benefited New Zealand hugely, being on the doorstep of Asia and the structural changes that are going on there. For places like Australia that’s meant demand for steel and iron ore; in the case of New Zealand as Andrew mentioned it’s more about protein, dairy products and tourism. So, we’ve benefitted greatly.

New Zealand’s been very focused on negotiating free trade agreements, and they’ve really been ahead of the curve. That’s been great, because it’s really unlocked and enabled us to tap into that very fast-growing part of the world.

World Finance: Back to you Andrew, how is this big picture impacting New Zealand equities?

Andrew Bascand: Business confidence in New Zealand is strong. So is consumer confidence. And it’s been that way for some time. What that means is, businesses have invested, and that investment is coming through in terms of company profits, and increasing dividends. So our equity market yields about five percent. That’s pretty good on the global stage. In addition, we’ve got these great new listings in the agricultural sector, companies like Fonterra, Synlait Milk – can access this protein story – and new technology companies coming to the market as well. And they’re performing strongly.

So, we’ve got this diversified ability to offer investors yield on the one hand, and growth on the other. And, while I know markets will be volatile, over the medium-term I feel quite secure in saying New Zealand’s got some good foundations for growth going forward.

World Finance: And what about the bond market? Christian?

Christian Hawkesby: Well, for the New Zealand bond market, there are two key themes really. One is that it’s been a good environment for credit. There’ve been no major credit events in New Zealand, and we’ve really got a corporate sector with very strong balance sheets, and that provides confidence for investing in credit.

Secondly, like everywhere else in the world, interest rates have been cut in New Zealand by the central bank, but not by nearly as much in New Zealand, so we still remain a relatively high-yielding country by global standards.

World Finance: Christian, Andrew, thank you both very much.

Andrew Bascand, Christian Hawkesby: Thank you.