Front page or business page
By Bruce McLachlan, Chief Executive
06 June, 2018
Based on some of the many conversations I have had, I know that many of you reading this may have particularly high blood pressure right now. If you have been taking an active interest in your investments or KiwiSaver account day to day, or seen the headlines in the media, you are most likely aware that 2018 has been five months of disruptive global events, all seemingly having the potential to correct highly priced global asset markets.
Not a week goes by when there is not something new on the horizon that has the potential to make investors nervous — Most recently there has been rising global interest rates, North Korean missile threats, developing trade wars and of course the very recent instability with Italy and the downstream potential risks to the European Union. In this part of the world we have also had the initial impacts from the Financial Services Royal Commission in Australia. Any one of these in isolation has had the potential to drive mass market selling, however put them together and there is good reason why many of you may be feeling the pressure!
Despite all of the headlines, occasional panic and tweets, I would encourage you to reflect on the 2018 reality for investors. The Dow Jones industrial index started 2018 at 24,719 and at 31 May was 24,415. Virtually unchanged. Similarly, the ASX200 started the year at 6,065 and finished May at 6011. The NZX50 started the year at 8,398 and at 31 May was 8,658, a 3% gain. Even in the United Kingdom where they are dealing with the uncertainty of Brexit in addition to all of the international dynamics, the FTSE 100 has broadly retained its value having been 7,687 at the start of the year to 7,678 at the end of May. It is fair to say the reality has been totally different than the headlines. Stock markets have been very resilient.
This is because fundamentals have offset the more dramatic political headlines that have grabbed media attention so far this year. Notwithstanding high global asset prices at the start of the year, the Fisher Funds investment team did call out that global corporate earnings have been particularly strong, and with good economic growth almost everywhere, the immediate prospects for corporate earnings remain favourable.
Of course none of us know what is just around the corner, however the challenge of trying to understand and read the impact of global events on global markets is evident. Materially bad events have always happened, are still happening, and will keep on happening. They are also newsworthy and falling markets will always create spectacular headlines. Who will forget the New Zealand Herald's front page from February 2018, with the one word "Bloodbath" taking up the whole page? The fact that the NZX has not only recovered those falls and is ahead of that market level is not newsworthy. Market falls are front page; market rises are business page. The future has to start with getting New Zealanders to look at long-term realities, not short-term headlines.
Improving your long-term future
Right now there is an opportunity for many New Zealanders to improve their future and grow their personal wealth by taking on more risk with their investments, particularly where they have genuinely long-term investment horizons. As a country, we are underprepared for retirement, not saving enough and are frequently invested in the wrong (conservative) assets. Remember while bank deposits are safe for the long term they also have a very large opportunity cost. The fear of near-term global events has driven this conservative view of New Zealand investors and KiwiSaver account holders, rather than the long-term market reality.
It's time for all of us to truly embrace long-term decision making and smart investing. The first 5 months of 2018 is a case in point. Bad news will occur. Market corrections will happen. Quality companies will grow their earnings over time. Markets eventually recover. Smart investors needn't worry; they will welcome the inevitable market correction rather than fear it knowing that others reading the front pages will make impromptu decisions. The Fisher Funds investment team has done an excellent job in recent times focussing on drivers of long-run investment value, and you our investors have profited. If only more New Zealanders had benefitted from this conviction.