Wednesday, 1 July 2009

Peter Schiff on New Zealand [updated]

I don’t know about you, but every time Peter Schiff talks I’m prepared to listen, so when he talks about New Zealand, which he still recommends as a “commodities stock,” I’m fully prepared to sit back and listen very seriously.  Here’s what he says in his latest newsletter:

Featured Investment Recommendations
Australia and New Zealand: Investment Recommendations in Gold Mining (Aus) and Agri-Business (NZ)

We continue to like the fundamentals of Australia and New Zealand. While the global economic downturn has left its mark on every nation, we believe Australia and New Zealand retain better positioning than most developed nations of the West. First, GDP growth estimates, government balances and corporate valuations look to be better than peers. Second, higher interest rates and reasonable inflation expectations should continue to attract investors seeking a higher yield. Finally, both nations have significant exposure to natural resources and Asia Pacific nations, likely fostering growth in trade as the region experiences continued growth in export and consumer activities.

The Fiscal Outlook for Australia and New Zealand Remains Positive. 2009 GDP growth estimates for Australia and New Zealand, at -1.4% and -1.9% respectively, are certainly favorable in light of a global slowdown and when compared to other developed nations such and the US and United Kingdom at -2.8% and -4.1%, respectively. Further, Australia and New Zealand have maintained a positive government balance for the majority of the past five years and although they are expected to run a deficit in 2009 of -2.3 percent and -2.8 percent respectively, this is low compared to the US and United Kingdom at -13.6 percent and -9.8 percent, respectively. Finally, from a valuation standpoint Australia and New Zealand appear to remain attractive compared to other developed nations, particularly if a rebound in commodities happens before economists expect.

Interest Rates Support a Stronger Australian and New Zealand Dollar. While we believe recent comments from leaders in Australia and New Zealand, expressing worry over the rapid increase in their currency's valuations (up 26% and 29% against the US dollar since March 2009, respectively) increases risk that policy action may put a short-term lid on the currency's appreciation, over the long-term we believe fundamentals support further appreciation of the Australian and New Zealand Dollars. Current policy interest rates in Australia and New Zealand are 275 and 225 basis points higher, respectively, compared to the US, while at the same time the IMF expects inflation rates in 2010 to remain relatively equal amongst the three countries. We believe these higher interest rates will support an inflow of capital as investors seek greater yields, improving the valuation of the Australian and New Zealand dollars versus the US dollar over the long-term.

Australian and New Zealand Economies Should Benefit from Their Resources and Geographies. We believe Australia and New Zealand's exposure to natural resources and their close vicinity to the Asia Pacific region will serve both economies well. Any economic recovery will likely induce a renewed demand for natural resources, including coal, oil, natural gas and minerals. With both Australia and New Zealand having access to an abundance of natural resources, we believe a recovery in demand will have positive implications for both GDP growth and their currencies.

Figure 4. Recent Performance of Rogers International Commodity Index

We also believe that Australia and New Zealand's close vicinity to economies in the Asia Pacific region will be a benefit moving forward. Besides importing natural resources to fuel export growth, we believe Asia Pacific nations will also import more finished goods as the region experiences a secular shift towards increased consumer spending. In 2008, Australia and New Zealand sent 14.6% and 5.9% of their exports to China, respectively. Australia has recently renewed negotiations with China for a free trade agreement, while New Zealand and China signed an agreement in April of 2009. Further, Australia is currently negotiating free trade agreements with Malaysia, Japan and the Association of Southeast Asian Nations (ASEAN) while New Zealand is negotiating free trade agreements with Malaysia, Hong Kong, Korea and ASEAN. In addition to China, New Zealand has agreements in place with Singapore and Thailand. . .

Head to his newsletter for the recommended investments, one each for Australia and NZ.

UPDATE: Meanwhile, in stark contrast, over at Bernard Hickey’s blog:

Two top financial analysts in Australia and America have highlighted New Zealand’s overblown house prices and high foreign debts in detailed criticisms of the structural imbalances in both Australia and New Zealand. One described New Zealand as “Australia’s Eastern Europe” . . .

1 comment:

  1. "Any economic recovery will likely induce a renewed demand for natural resources, including coal, oil, natural gas and minerals. With both Australia and New Zealand having access to an abundance of natural resources, we believe a recovery in demand .."

    That'll upset the Greens.

    Schiff's just made my day -- she said, reaching over to switch on the heater! :)


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