Sharemarkets have fallen again this past week as investors find themselves with plenty of reasons for backing away from riskier assets. For some it is the fall in oil prices and resulting poor profit outlooks for businesses involved in the energy sector, expectations that sovereign funds of oil exporting countries will sell assets to offset revenue losses, and losses to be taken by banks which have lent to energy companies.
For others it is worries about the still slowing pace of growth in China and the high risk that capital outflows from China’s millions of individuals and businesses will continue to rapidly deplete reserves and force a currency devaluation. This then would worsen deflation risks in other countries and pose more problems for central banks who are printing money and introducing negative interest rates yet failing to stimulate business investment.
For still more it is the need for banks in Europe to raise more capital, Europe’s many problems more specifically, and if not that then worries about the Middle East, Korean Peninsula, spread of radical Islamism, and US monetary policy.
Through all of this we are affected by downward pressure on commodity prices yet absence of a concomitant fall in the NZ dollar which has risen three US cents his past fortnight. This is because our economy is in far better structural, financial, and growth positions than most other economies.Download document