Markets reassured

Press, 17 December 1988, Page 30

Markets reassured

By

ADRIAN BROKKING

The New Zealand sharemarket came through a traumatic week with flying colours, as it grappled with political events and power cuts. After recovering gently on Monday and Tuesday, it had a surprisingly small fall on Wednesday after the dismissal of Mr Douglas, but then bounced back sharply on Thursday, to lose only a little ground again yesterday. The upturn in share prices and the rate of exchange, combined with the fall in long-term wholesale interest rates, signalled the financial markets’ approval of Mr Caygill, and rightly so. His fine performance on television on Wednesday night was largely instrumental in settling the markets. His endorsement by Mr Douglas was also a bullpoint, and last but not least the ending of the uncertainty of the last five weeks had investors breathe a sigh of relief. Yesterday the still frail optimism got another setback caused by the sliding Australian sharemarket. A number of leading stocks that either held or made ground in Friday’s

morning session retreated in reduced afternoon trading as the Australian markets reacted to the release of worse-than-ex-pected November trade figures, and falls in the prices of gold and platinum. The current account deficit of sAustl.s billion was more than double some forecasts, and caused interest rates to rise and the Australian sharemarkets to fall. Worse still, Australian investors showed no interest in the New Zealand market either. But over all the local sharemarket recovered some 1.5% during the week — all of it and more due to the restoration of confidence as investors were reassured by the pledges of Mr Caygill that the Government remained committed to “the two pillars” of Douglas policy, monetary and fiscal stability, and to the reduction of the domestic deficit. The main question that remains unanswered is: if there are not going to be any changes, why did Mr Douglas have to go? Was it at bottom just a personal feud between the

Prime Minister and the Minister of Finance? Can Mr Caygill really pick up the portfolio without any change in policy? There cannot be any doubt that in the last six months there has been throughout the country, and shared by most sectors of the economy, a strong groundswell against Rogernomics. There is a growing belief that it is not working. People are becoming horrified at the savage social costs, and are worried that in spite of the sacrifices real investment remains low. Firms are still closing or sometimes move overseas. This is no doubt fact, although it could be argued that the low investment in this country has as much to do with our poor performance in the field of labour relations and our traditional colonial attitudes to risktaking and entrepreneurship. In any case, if Rogernomics has failed, or is perceived to have failed, how can Mr Lange in his speech of December 7 to Christchurch businessmen, and Mr Caygill in his television interview a

week later, generally reaffirm Rogernomics?

No doubt Mr Caygill is seen as a more flexible and pragmatic practitioner than Mr Douglas, who had acquired a reputation for dogmatism. He could possibly provide answers to problems that might have eluded Mr Douglas. There is no doubt that interest rates are too high (although they were coming down nicely until markets became worried about the political infighting) or that it would be good for our export industries and our farmers if the exchange rate came down. But let us hope that those that want to see these rates actively lowered would not be tempted by some form of interventionism. One can understand the feelings of those that object to the cost of the last four years’ economic restructuring. However, we were headed, albeit more slowly, in the same direction and for a certain longlasting slump for many years well before 1984.