As you have most likely seen or read in the business headlines, there has been much speculation around the market volatility in Greece and the US. Much of what we see and hear is concerning and it seems everything is continuing to head downhill. This market fluctuation is linked to the insolvency issues in Greece and high unemployment rates in the US. With global economic growth and likewise investment returns set to remain below average for years to come, there are still some positive areas to be taken out of this dismal situation. We have listed 4 more reasons why it is not all bad in this article.
1. Reporting Season suggests that Profitability Is Still Intact
According to the August reporting season, many high quality companies showed comforting results. In the US, 75% of companies exceeded expectations and reported earnings growth of 16% for the year. In Australia, their largest mining company BHP Billiton, recorded a net profit of US$21.7b for the 2011 year, a remarkable 73% increase on last year.
2. NZ and Australia, Both In Strong Position Economically
In comparison to other areas of the developed world, Australasia is becoming more and more well positioned. With Unemployment rates comparable low, a stable banking system, key exports in strong demand and a sensible political leadership – NZ and Australia are close to the growth engines of the world in Asia. The Australasian banks have space to reduce interest rates if required (whereas the US interest rates are already at zero). In NZ, the Rugby World Cup and Christchurch rebuild following the earthquakes, should provide some positive economic outlook over the next 18 months.
3. Our currency has room to fall if it needs to.
We feel that our currency will stay strong as a result of New Zealand’s high interest rates and stronger economic fundamentals. Looking at periods of very high volatility, we have often experienced our dollar decrease. For example, in 2008 our dollar dropped from US$0.80 to US$0.50 in less than a year. If a similar situation was to occur again, as a result of same global risks from a few years ago, our currency would be an important shock absorber, helping to lift our export sector and protect us from possible weakness in soft commodity prices.
4. Political dysfunction will hopefully be overcome by pragmatism.
A lack of leadership and overall political disagreement have made a difficult situation worse, whether it is the two houses of the US Congress or the seventeen member states of the Eurozone. This is more of an opportunity rather than a strength, but a bit of common sense and practicality from the politicians would go a long way to moving us toward some solutions.