Gimme shelter
Martin Hawes on financial storms
This week, David Hisco, CEO of ANZ, wrote the most extraordinary opinion piece I have seen in my many years in finance.
Hisco detailed the manifold difficulties that face New Zealand: an overvalued exchange rate, the economic trouble of our biggest trading partner and widespread political instability are worry enough, but at the top of Hisco’s list is the housing market.
Hisco sees storm clouds gathering and does not write ‘‘if’’ they will break but ‘‘when’’ they will break. I have never before seen a senior banker talk down his own book like this. Clearly, it is time to take shelter.
Remember, these comments come from the head of New Zealand’s biggest bank. Of course, just because Hisco is a successful banker and manager does not give him a perfectly functioning crystal ball. But he does come at these issues with some invaluable insights.
As a banker, Hisco is not incentivised to beat up a storm. Normally, bankers speak in soft, comforting tones but in this opinion piece, he is forthright. He talks of his bank’s preparedness to toughen up on lending criteria and effectively advises landlords to sell.
Hisco says this is not in the bank’s interests – they usually want to sell more mortgages. Instead, the impression is that Hisco and his bank are deeply worried.
Hisco sets out a policy strategy to try to correct the situation this country finds itself in. I come from a different position. Rather than try to advise on public policy, I am qualified to try to advise individuals and families on what they should be doing with their money.
For shelter from a looming cloud burst, I have advised three things:
First, shun residential property as an investment. I have advised clients to sell residential rental property and to stay out of that market – prices are too high and, in Hisco’s words, the yield is ‘‘measly’’. To speculate on a continuing upward spiral of house prices is a dangerous bet with borrowed money.
Second, lower risk in investment portfolios. Six weeks ago I wrote about reducing the share component in my own portfolio from 50 to 40 per cent and I have advised clients similarly. Since that time, risk has risen.
Third, invest offshore. I have maintained 40 per cent of my portfolio’s value in investments which are outside Australasia. If a storm starts with a New Zealand specific event like a major fall in house prices, foreign investments would be a very good place to be.
Nobody has a mortgage on predictions. All you can really do is try to compute risk. For my money, the chances of economic rain seem high.