Soft landing an illusion
High debt amongst New Zealanders is going to put a brake on the local economy, says Arcus Investment Management.
Tuesday, October 17th 2006, 6:48AM
by Rob Hosking
“I think KiwiSaver will be crucial, especially at getting those younger people into savings,” says chief investment officer Mark Brighouse.
“But it will be a disaster if it just gets them into conservative funds.”
Arcus is downbeat about the current prospects for the economy, chief economist Rozanna Wozniak says.
“The soft landing is an illusion…corporate earnings are going up among our trading partners but in New Zealand they have flat-lined.”
Arcus expects this to continue, because the local household sector has not yet had the “correction” which has been seen in Australia.
“For New Zealand-based investors, the asset allocation decision is now all about reducing home country risk.”
Brighouse says there New Zealanders need to change the way they currently invest.
“In New Zealand, we have done extremely well at boosting our wealth by buying houses, and then sitting back and watching them increase in value.
“Unfortunately, we regularly leverage against those higher housing values to fund consumption and buy even more houses, creating a never-ending cycle of rising debt levels.”
That means the pattern has reached a level where increased amounts of money are going on debt servicing – leading to even less money to put into consumption or other savings.
“If this vicious cycle continues, future generations will find it increasingly difficult to accumulate wealth and, in particular to become home owners.”
And for the wider economy, this means less money going into wealth-creating assets.
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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