Economic pick-up ignored—analyst

Press, 28 June 1989, Page 37

Economic pick-up ignored—analyst

PA Wellington The Fidelity International investment manager, Mr Danny Chan, says New Zealanders are ignoring economic indicators that point to an imminent recovery.

Mr Chan — known as one of New Zealand’s leading investment analysts (he was with the DFC) before moving in 1986 to head Fidelity International’s operation in Taiwan — said New Zealanders were too depressed to look at improving macroeconomic factors.

"As usual, they will be very surprised when they wake up one day to find that the economy is suddenly heading for a boom,” Mr Chan said in an article.

“The pace of recovery will be very slow at the beginning, but once confidence returns it will pick up speed. If you believe in buying in gloom and selling in boom, now might be the right time to make some investments.”

Emotion was preventing New Zealanders seeing the recovery — just as euphoria had prevented them seeing how bad the economy was in 1986 and 1987 before the sharemarket crash. Mr Chan was in New Zealand recently and found people "close to despair” about the state of the economy.

This was hardly surprising, given that major corporate collapses and bankruptcies were in the news every day, he said.

Regular reports on rising unemployment and emigration gave the impression things were going down fast. “Empty offices, closeddown shops along the main streets of Wellington and tight money supply have constantly reminded people that the country is heading for a depression,” he said. Mr Chan said he would have felt the same way had he stayed in New Zealand. But looking at the country from the outside “without being carried away by emotion,” he believed New Zealanders were over-pes-simistic.

The economy had bottomed out some time ago but, like every economic cycle, there was a time lag before any actual improvement showed through. The same thing had happened in 1986 and 1987 when everyone felt the economy was booming, Mr Chan said. Yet well before the crash, felt there were clear signs that the economy was heading for a rough patch. The balance-of-payments deficit in 1986, and foreign debt and inflation in 1987 were at their worst-ever recorded levels, he said. “As you can see, there was

no reason why the New Zealand economy was so bouyant in 1987 other than euphoria,” Mr Chan said.

People in New Zealand again seemed to be taking no notice of economic fundamentals.

Mr Chan listed improvements in inflation, interest rates, gross domestic product, savings, the trade balance, balance of payments, and a slowdown in emigration as evidence that the economy was on the way up. The drop in inflation was "quite a dramatic improvement,” and it was interesting to note that housing, which accounted for 23 per cent of the consumer price index, had fallen from an annual rate of increase of 20 per cent in September 1987 to 4.7 per cent in the latest quarter.

Interest rates should continue to come down given that inflation was under control. The small increase in gross domestic produce in the December quarter suggested the economic trough had been reached — there had not been a positive real growth for a long, long time. Emigration losses were slowing down, and a more relaxed immigration policy could see more wealthy Asians come to New Zealand next year, producing a net migration gain that would boost demand for goods and services.