Published by North & South 15 May 2017
Reap the financial benefits of “overseas experience”.
Investing money overseas can make many Kiwi investors nervous. The reality is that allocating some of your investments to overseas markets is a prudent measure to mitigate the risk of a domestic downturn and may minimise the fluctuations within a portfolio.
The reality is New Zealand’s economy is small and interconnected. Our housing market, stock market, farming sector, businesses and currency can all be hit by the very same events. That means keeping all your money tied to New Zealand investments is a risk Kiwis should be aware of, and ideally address, says Andrew South, Investment Manager – Australasian Equities at QuayStreet Asset Management.
“It’s prudent for most Kiwi investors to have a chunk of their wealth invested offshore, whether that’s in conservative, balanced or growth-type assets,” says South.
What many investors don’t realise is that even New Zealand’s largest companies are minnows compared to the likes of international giants: Apple, Amazon, Alibaba, Royal Dutch Shell, Samsung and hundreds of others. Although huge by New Zealand standards, our largest company, Fonterra, had $17.2 billion in revenues in 2016 compared to Apple’s $310 billion ($US215.6 billion).
World Stock Exchanges by Market Capitalisation
The above chart shows the relative size of countries’ stock exchanges by market capitalisation (in $NZ billions). New Zealand is worth only 0.11% of the total global market; Australia only 1.64%.
The beauty of investment in international companies isn’t just the size and strength of these organisations, says James Ring, Investment Manager – International Equities at QuayStreet Asset Management. For Kiwis it’s the fact that by investing overseas their fortunes are diversified away from what’s happening to the economy at home. It smooths out the blips that can come from a downturn in the business you may be employed in or possibly own, also from property or share market falls, or an unexpected drop in the New Zealand dollar.
Small and medium-sized business owners are particularly at risk if they are totally reliant on the New Zealand economy for their financial future, says South. In the 1980s, many Kiwi investors took a big hit by relying too heavily on our tiny – by international standards – stock market, which crashed spectacularly in 1987. Sadly, the same fate befell numerous finance company investors who, in some cases, lost everything in the late 2000s by relying on a very narrow set of investments that proved to be far more risky than they may have realised.
It’s not unusual for individual Kiwis to be nervous about investing overseas, particularly when events like Brexit and Trump, in 2016, see an increase in market volatility, which is to be expected. Yet both the UK and US markets have recovered and gone on to make new highs.
But not everyone is an expert at investing. By investing in an actively managed fund, such as those provided by QuayStreet Asset Management, New Zealanders benefit from the expertise of professional managers, who have the skills to better understand the effect of international events such as proposed isolationist policies in the UK and US – or the effect that conflicts in Syria and North Korea could have on their investments at home and overseas.
These dramatic geopolitical events can be unnerving to ordinary Kiwi investors, says Ring. The reality however, is they can be a buying opportunity for professional managers who recognise that shares in big international companies sometimes fall in price following major economic and political events, just on sentiment, not changing fundamentals. Professional managers understand economic risks as well, such as the impact of inflation raising its ugly head or of a new energy crisis.
While ordinary Kiwis can be spooked by geopolitical events they don’t fully understand, professional managers see the bigger picture. At times when private investors are inclined to sell because share prices have fallen, professional manager see “bargain” tags attached to quality companies.
“We can’t control geopolitical risk, but we can control which companies we invest in,” says South.
Likewise, professional managers can make better decisions about the timing of altering the balance between developed and emerging markets to get a better return for investors. Currently, for example, QuayStreet Asset Management’s funds are weighted towards the larger developed economies.
Negative news headlines mean it’s easy for individual investors to take global events out of context and forget that global GDP is still on track. And Federal Reserve Chair Janet Yellen is doing a great job with the US economy, says South.
In simple terms, what this means for ordinary Kiwi investors is that international diversification can be a prudent way of dodging the full impact of political fallout, economic downturns, or unexpected “black swan” events locally.
Diversifying internationally is easier than many Kiwis realise, says Ring.
“QuayStreet has a range of 10 funds that meet a wide range of risk profiles of investors, many of which include exposure to international companies.”
For those who have an existing portfolio of New Zealand investments, and are seeking exposure to international investments, QuayStreet offers an “International Equities Fund”.
For more information contact our QuayStreet team - 0800 782 900
Article was published by North & South 15 May 2017