But this happy situation has some less-than-happy implications for most NZ investors, be they small, medium or large .
But now we have a “new cockroach in the woodshed” – a potential massive wrecker of our economy - any sort of contamination in our milk based exports - such as the botulism scare.
It would be less of a concern if our exports were much more diversified and sold to many more countries.
A massive risk
But no, more and more NZ is heavily weighted to selling a single product to a single country- – China - with escalating risks;
· Contamination in the product
· Foot-and mouth disease
· Pollution – leading to contamination - too many dairy farms in a concentrated area
Other lesser but none-the-less real risks
- Downturn in the Chinese economy
- Factories leaving China as their labour costs rise – already happening
- Australia have already learnt that China can cut back and buy less
- Other countries increasing dairy production and wanting part of the action – e.g. Ireland
- A drought in NZ over 2 - 3 years
- Selling our technology to our markets - one of my flying g colleagues is selling rotary milking sheds to China – good on him too – but how long will it be before they copy all our technology ?
Other current risks to NZ
- Over priced housing in Auckland could blow up too.
- The high dollar could slow down tourism.
- Rising interest rates here could drive the NZ$ even higher, making our produce more expensive.
- Our competitors are not asleep.
What if any two of these risks occur at the same time ?
If NZ gets clobbered, then NZ shares and other NZ investments will turn down – maybe a lot.
But the answer is easy - diversify offshore
It’s a ill wind blows nobody any good
Whilst the high NZ$ is hurting some people, it is a good time for investors to go offshore.
Buy offshore investments while the NZ$ is is high.
NZ shares have risen over 50% in the last 2 years, so maybe it is a good time to reduce any NZ share holdings – take profits - and move offshore.
Counter cyclical - move some money out while the NZ$ is at or near a peak.
Remember - buy low – sell high.
We hear their bank lending is up, a sign their economy is stirring upwards.
Make a big shift to Ozzie investments ? No , never – softly softly catchee monkey.
Oh heck, too complex, I’ll just put my money in the bank
The banks lend massive amounts to dairy farmers, and to Auckland property buyers.
So if the wheels fall off, how will the banks fare ? They are not risk free.
Is a diversified portfolio lower risk than a bank ?
It could easily be argued that it is.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media & on line – see www.acfs.co.nz
His second book is due out in May 2014 & is entitled “The Great NZ Work, Money & Retirement Puzzle”.
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.