No news good news

Press, 18 February 1989, Page 21

No news good news

“No News is Good News and this week there has been an abundance of News!”said Mr Michael Sidey, Christchurch director of Forsyth Barr, in a comment on the week’s share trading. "Sometimes I wonder if it really is good being deregulated and having to react to the ebb and flow of international economies. Remember the days when it took days or even weeks to have cause and effect on our equity and fixed interest markets. Now they are continually volatile because communications are so improved and decisions short-term. “The first subconscious act of every weekday is turning on the radio at 6.45 a.m. to catch up on world investment news. When they get the international, indices and share prices right (which I am afraid is not very often) an hour of morning report and a perusal of the financial pages gets you tuned in to the day ahead.” A quick flick on to the sports pages to see if Canterbury’s cricket hopes are stil alive and off to work where the NBR covers the worst news of the day. A conference discussion with all four Forsyth Barr offices summarises the national newspapers and any relevant evening meetings. “The communication system is so efficient and quick that often news is reacted to several times before the fact is known, i.e. it becomes the

process of “buy the rumour and sell the fact.” A good example this week has been the reactions to Chase Corporation’s position. Chase Corporation was seen to be having problems and the price was drifting back. Rumours spread that they were to announce the sale of Hanlmex causing the share price to firm to $1.02/$1.03. The announcement was made and the price jumped to $l.OB before it was obvious that the announcement bad been fully anticipated and the price dropped back to 92c. Then of course the credit ratings changed for the worse and they have closed this week at 72c. That is a price change of 34% in very few days. “It is a pity Sir Ron Brierley has deemed it necessary to tender his resignation as Bank of New Zealand chairman. With so much controversy and rumour surrounding the exposure of the bank to corporate debt this is just another unsettling factor. Norman Geary is rumoured to be Sir Ron’s replacement; his track record of retrieving run-down businesses and bringing them to prosperity is well known.” Thursday’s announcement of a blowout in the Australian Current Account deficit for January to sAustl.s billion was greeted with dismay by the Australian financial community and offshore investors alike. The markets’ reaction was immediate. The Australian dollar was sold heavily,

interest rates rose across the board, and the equities market dropped 30 points.

“The causes of Australia’s dilemma are not difficult to identify. Post crash an apparent easing of monetary policy and the introduction of fiscal policy conducive to credit growth, specifically the reintroductfon of negative gearing on property transactions created an environment of excessive consumer demand. This is best reflected in the buoyancy in the’ property sector where both the residential and commercial sectors have enjoyed unprecedented capital growth during 1988. The present administration must now recognise that •it has not reacted quickly enough to the warning signals which emerged during the last twelve months. Certainly interest rates have risen but its a little bit like a train, you put the brakes on but it takes a long time to slow down. If the train doesn’t stop in time, the consequences may be unpleasant. It is likely that interest rates will continue to ratchet up. The potential consequences for both the equities and property markets should not be ignored. This situation mirrors almost exactly New Zealand’s position 14-16 months ago. With government stock yields high any funds designated to stay in Australia could be prudently transferred from equities, to ensure capital preservation.