Amidst all the recent rumblings in the world’s major economies, I thought I might change things up a bit and use this month’s column to provide my insights on the current situation and how it might play out. There are opportunities amongst the turmoil.
At the heart of the ongoing issues are the Trump administration’s on-again off-again tariff policies. These have caused uncertainty and volatility on bond and share markets across the globe, characterised by significant market swings on an, almost, daily basis.
For many individual investors, this signals worrying times, but the fundamentals of most major local and international companies have not changed dramatically. In fact, it creates potential for those willing to invest for the long term, based on the Warren Buffett observation that the best deals can be made when people are at their most pessimistic.
How president Trump’s efforts to change the world economic order affect us locally has still to be determined. As with many other countries, New Zealand has been working hard to get rid of tariffs but they’re back and they have been weaponised as a way to generate income from the biggest exporters into the US.
This is despite an underlying aim to address trade imbalances and allow income tax for US citizens and companies to be significantly reduced or even eliminated.
There seems to be little faith amongst international economists that this approach is likely to succeed and the rejection of ‘Trumpist’ ideology evident in the recent Canadian and Australian elections. Together with the withdrawal, or watering down, of tariffs relating to a wide range of goods and countries, this may well signal more changes and uncertainty to come. And, as we all know, bond and share markets hate uncertainty.
Whether Trump sticks to tariffs or not, the best thing we can do for markets is make a decision and create certainty by sticking to it. From a New Zealand perspective, most of our trade with the US is commodity based and it’s not unusual to get quite large shifts in commodity values.
In that context, a 10 per cent tariff is probably not a ‘killer’ for most exporters to the US and we are on equal or better footing than all of our competitors. I’m, therefore, bullish about our ability to ride out this particular storm relatively unscathed.
I’m also bullish about ‘NZ Inc’. As interest rates go down we tend to see a shift in focus from bonds to equity markets and that signals big potential gains for investment vehicles such as KiwiSaver funds. Some projections indicate that the total value of KiwiSaver funds could increase from circa $100 billion now to about $900 billion by 2055. If that does eventuate, it also means that government investment agencies should be looking for opportunities close to home, adding further impetus to our economy.
In my view, the New Zealand economy is in a good position to grow strongly and, while prudent financial management will be key, there’s no reason why we shouldn’t expect the good times to return and for regional economies to prosper.
The outtake from all of this locally is that the business sector needs to hang in there – do what you do well and look for opportunities to focus sales efforts on stable markets that offer the best long term prospects. There is also an opportunity for the brave to use the current volatility as an entry point for long term investment.
Mahé Drysdale is an Associate Chartered Accountant (ACA). Prior to his election as Tauranga’s Mayor in July 2024, Mahé worked in investment and financial advisory roles, as a registered Financial Advisor, for both Hobson Wealth and Forsyth Barr Limited. He also worked as an accountant for KordaMentha in the late-1990s/early-2000s, before becoming a fulltime athlete and member of the elite New Zealand rowing team.
