Now compare that to an enormous pile of $2 coins on the same table. It reaches all the way to the ceiling and through the hole it’s made in it. This represents the rest of the world’s share markets.
The big pile is impossible to ignore.
Central banks . . . have printed an ocean of cash . . . and it is looking for a home.
As a whole, the world’s share markets returned about 1% per month over the last year. This 12%+ rise over 12 months has been spread across the board and it’s hard to find a geographical region, or industry sector, that’s doing poorly. It’s been a while since we saw numbers like these in NZ Dollar terms and it’s only recently that relief from a strong NZ Dollar has opened the doors to investing offshore.While many Kiwis generally get the idea that a weakening NZ Dollar helps the offshore investments we hold, many of us are often puzzled by strong sharemarkets when economies seem weak.
Much can be explained by the fact that investment dollars look for ‘relative’ returns more than just absolute returns. For example (and this is purely a ‘hypothetical’ to illustrate), if it is thought shares will return say 7% in the next 12 months, we might view that as a low absolute return. Not very exciting, perhaps. But what if bank one-year deposits are offering only 0.5%?
This is just the type problem that most of the world’s investors face today. Relative to bank deposits of 0.5%, a possible 7% from share markets seems very attractive on the face of it
Central banks, and the Federal Reserve in particular, have printed an ocean of cash since the Global Financial Crisis and it is looking for a home. With banks in most countries offering miniscule rates of interest, the chances are that a wall of money will keep pushing into share markets globally.
The door is open now to investing offshore
For Kiwis whose investment strategy calls for a reasonable allocation offshore, a window like this, when our Dollar is high and there is continuing strong demand for shares globally, might just be the ticket to sending our Dollars on an OE. Leave it a while (a year, a month, a week???) and it might be that the NZ Dollar will drop (it can happen suddenly) and the opportunity to buy offshore at a great exchange rate will be a missed opportunity, again! If you know this is an issue for you, give me a call on 09 520 9200 or email me at david.b@alliott.co.nz.David is licensed by the Financial Markets Authority (FMA) as an Authorised Financial Adviser (AFA) and his Disclosure Statement is available on request, free of charge.
The above note is not personalised for any individual or entity. It does not take into account your particular financial situation or goals (or any one or more of them). If you act on information contained in this note the outcomes may not be what you expected nor suit your particular circumstances. Neither David Burt, Alliott NZ Ltd, Alliott Financial Management (NZ) Ltd nor Global Portfolios Ltd will be responsible for any loss or non-payment as a result of actions taken upon information or recommendations provided in this note. Readers should seek investment/tax advice prior to action in relation to any of the matters discussed above.