I was just going through my newspaper clippings and I came across an advertisement which is rather interesting. It is an advertisement by South Canterbury Finance, the now liquidated financial services company that was supported by the government. Some interesting facts emerge:
1. They disclose a $NZ 82.7 million Net Profit Before Tax in the year to June 2008; not so great on on the $2 billion in assets. i.e. that's 4%, and that was before the slump in the markets
2. They had a investment credit rating of BBB-, which is a pretty poor credit rating.
3. They are expanding, by adding an office in Wanganui, a dying rural town you might say given that since 2006 its population has been falling. Clearly they were appealing to a rural constituency, and they wanted to grow their assets to allay doubts.
So its not like there was no evidence of problems....and that's just from their own promotion. The problem is mostly that in NZ, no one knows how to read a balance sheet or the economic outlook. Just to put your minds at ease:
1. Look for a AAA+ or AAA- in the credit ratings; and respond when the credit agencies do because they can work on the basis of perceptions, just as you do...or context if you like. In a bull market, no one cares about a bad credit rating.
2. The outlook is for higher commodity prices, strong NZD, a two-speed economy, with high oil prices, the strong NZD going to undermine economic activity. There is going to be an attack on North Korea and Iran within a year; they will be short-lived occurrences, but they will hit market confidence, so sell your shares. The US and other central banks will then look to offer stimulus, so you might expect a recovery thereafter. Give it a year to turn around, so we are 2 years away still from the resumption of the China 'bull market' story.
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