Will New Zealand Emerge from Recession First?

It has been a while since posting anything about New Zealand as an investment destination. I used to write a lot more about the country. The economy is much different than that of the US, except for maybe the deficits. NZ is a much simpler economy with dairy and other farm products being a big part of what goes on. It has been several years now since I sold New Zealand Telecom (NZT) and as I said then, I'm sure I will be back but I don't know when and I still don't know.

The chart below captures some of what I think of with regard to NZ, in that the decline was shallower than in the US but it did start to roll over sooner than the US did. Not captured in the two-year chart is that the US and NZ correlated very closely in the middle of the bull market, but before that, NZ outperformed significantly with the occasional run of negative correlation to the US. It is probably not accurate to think that NZ was a great place to hide out during the bear market.

Alan Bollard (RBNZ chief) said last week that New Zealand would be early to come out of the recession. This was almost simultaneous with Fitch lowering its outlook on the country to negative (the outlook, not the rating). For what it's worth, an analyst named Brian Redican from Macquarie said on Squawk Australia this morning that Fitch was late and that his firm tended to think Bollard was closer to right on New Zealand's relatively early recovery.

A good way to research what stocks are available is to go to the NZX website and just look around. There are plenty of stocks that have five-letter US designators including a couple of ports, one airport, several farming-related stocks and a couple of consumer names. While many of them can probably be accessed, they may be difficult to find deep enough markets to get trades done. Many of the stocks have very low share prices, so even a small position could be several thousand shares ,which could mean higher commission and your broker having difficulty finding shares. I have faith that this will become easier in the next couple of years, but that remains to be seen.

The catalyst for this post was this article about Fonterra, the big NZ dairy co-op. Fonterra is not publicly traded but there is a small chance that it could have a public listing soon. It stands to reason that a publicly traded Fonterra could be a reasonable proxy for the country. A big road block, as I understand it, is that the farmers who belong to the co-op believe their dividend pool would be reduced with a public listing. In addition to selling milk in the region, there is also a business where they offer consulting-like services for dairy management.

In the context of yesterday's post, I think New Zealand would be in the 2-3% portfolio weight category. I also think that at some point down the road there could be a little room for owning the currency or a little short term debt (but not both).