Kiwi $

[beammeup]

Why dont more people invest into a Kiwi $ time deposit account? Seems in these turbulant economic times 6-7% interest would be a safe and stable investment?

[Firefan]

I think many do - also in the Aussie 0 but do not forget the currency risk one takes on too.... 6-7%/year can quickly be whiped out by Kiwi currency weakening (against whatever is ones base currency) for whatever reason.

As an example; one can get 5% in Thai time deposits or US CDs so if my base currency is the USD, would I really want to take on currency risk for a measly 1%? On top comes fees for currency exchange + bid/offer spread.

Cheers!

[beammeup]

I think many do - also in the Aussie 0 but do not forget the currency risk one takes on too.... 6-7%/year can quickly be whiped out by Kiwi currency weakening (against whatever is ones base currency) for whatever reason.

As an example; one can get 5% in Thai time deposits or US CDs so if my base currency is the USD, would I really want to take on currency risk for a measly 1%? On top comes fees for currency exchange + bid/offer spread.

Cheers!

The Kiwi$ looks like a good value now against the £. I dont know a lot about the New Zealand economy, but the $ seems stable

[Sophon]

The Kiwi$ looks like a good value now against the £. I dont know a lot about the New Zealand economy, but the $ seems stable

The NZD can hardly be called stable as it has weekened more than 14% against the GBP over the last year. So having put your money in NZD at 7% p.a. one year ago would effectively have reduced your savings from lets say GBP 10,000 to GBP 9,180. And thats not including the effect of inflation.

You don't get nothing for nothing. High interest rates for a currency equals a high currency risk.

Sophon

[beammeup]

The Kiwi$ looks like a good value now against the £. I dont know a lot about the New Zealand economy, but the $ seems stable

The NZD can hardly be called stable as it has weekened more than 14% against the GBP over the last year. So having put your money in NZD at 7% p.a. one year ago would effectively have reduced your savings from lets say GBP 10,000 to GBP 9,180. And thats not including the effect of inflation.

You don't get nothing for nothing. High interest rates for a currency equals a high currency risk.

Sophon

It still looks like a good value, life is full of riskes (Firefox, no 1 % isnt worth the risk but I am only getting just over 3% on the pound so 3% more may be worth the risk). Just sending out feelers. Any idea what is dragging it down?

Edited July 30, 2006 by beammeup

[Ling Kae]

The higher the interest rate the higher the risk. I personally wouldn't invest there. This is just a small snip from the Reserve Bank of New Zealand.

New Zealand's foreign liabilities currently outweigh its foreign assets to the tune of $124 billion (81 per cent of GDP) a much higher net liability position than in virtually any other developed country. This reflects our long history of running current account deficits.

More can be found here.

Edited July 30, 2006 by Ling Kae

[beammeup]

The higher the interest rate the higher the risk. I personally wouldn't invest there. This is just a small snip from the Reserve Bank of New Zealand.

New Zealand's foreign liabilities currently outweigh its foreign assets to the tune of $124 billion (81 per cent of GDP) a much higher net liability position than in virtually any other developed country. This reflects our long history of running current account deficits.

More can be found here.

Thank you Ling. Very insightfull link. I wander if the Housing prices have gone down since then? It talkes about an inevitable correction prompted by lower exchange rates and/or higher interest rates. The interest rates are higher and the exchange rates are lower. Maybe the correction is over?? Definitely requires further investigation

[Firefan]

Beam; we do not disagree as such, but your original post saw 6-7% "safe". I, and others, pointed out that it is far from "safe", as Sophon's example showed.

After that the discussion switches into currency speculation, an area I on purpose stay far, far away from. Currencies are even harder to predict than stock markets (in the long run it goes up...that is the nature of business; to grow - NOT the same for currencies). Currencies are much more affected by pride/politics/gov. strategies than the stock markets (but they are also affected of course), and can be manipulated(start those printing presses!) much more too.

Personally I am diversfied globally from a currency (as well as asset class) perspective to ensure that my overall buying power remains fairly stable (about 1/3 in USD assets, 1/3 in Eu currencies and 1/3 in Asiapac currencies).

Cheers!

[kiakaha]

Why dont more people invest into a Kiwi $ time deposit account? Seems in these turbulant economic times 6-7% interest would be a safe and stable investment?

Where did you get those figures from? I get 8.25% on a 7 figure sum with Bank of New Zealand Private Bank.

However with the weak kiwi currency, we currently re-invest the interest payments locally(property mainly) or use the cash whenever we pass through town

[beammeup]

Beam; we do not disagree as such, but your original post saw 6-7% "safe". I, and others, pointed out that it is far from "safe", as Sophon's example showed.

After that the discussion switches into currency speculation, an area I on purpose stay far, far away from. Currencies are even harder to predict than stock markets (in the long run it goes up...that is the nature of business; to grow - NOT the same for currencies). Currencies are much more affected by pride/politics/gov. strategies than the stock markets (but they are also affected of course), and can be manipulated(start those printing presses!) much more too.

Personally I am diversfied globally from a currency (as well as asset class) perspective to ensure that my overall buying power remains fairly stable (about 1/3 in USD assets, 1/3 in Eu currencies and 1/3 in Asiapac currencies).

Cheers!

I like you am trying to diversify globally. I was thinking of 1/4 into NZ$. I was going for some high risk Offshore funds but they have become too unstable. Do you mind sharing which asiapac currencies you like?

[cclub75]

I agree. NZ$ is a little bit too "hot".

The country is small, they have imbalances (trade and current deficit, household debt), are exposed to oil prices... the central bank must keep high interest rates... By doing so, the "hot" money is coming (speculation attracted by high yield)...

At one point : the hot money could leave NZ$ as fast as it came : -> devaluation would be then the only remaining solution. So beware.

Comments of the central bank :

http://www.rbnz.govt.nz/speeches/2111459.html

One currency I like very much : AUD.

Australia has also imbalances, but its economy is strong with commodities (mining, metals etc.). And this point is good for the mid-term economic outlook, and therefore, for the currency.

One recalled a very important point : diversification. It makes sense for currencies too.

Put all your cash in 1 currency would be unwise.

Personnaly : i have Euro and AUD.

With more cash, and with the idea to increase my "hot" money part, i would choose RMB.

And with even more cash i would choose Swiss franc.

-USD, JPY : too risky (for differents reasons)

-Hong Kong $ : finished. Mainland has decided to take the cover for itself : therefore the economy of HK will continue to decline.

-Other asian currencies : philippines, indonesia, thailand : way too fragile (political level = zero, economies seriously flawed etc.) and they all have a very scary sword over their head : oil price.

-Singapore dollar : why not.

[steveromagnino]

OK, I know not much, but here is how I see NZ>....

NZ was paying high interest rates for a while, which meant that a lot of Japanese housewives had money invested in NZ. It also meant NZ businesses were having problems competing because not only did they have a high currency which made exporting tough, but also they were paying high interest rates so they didn't expand.

The high interest rates helped to put pressure on NZ obsession to invest in real estate for reasons not known to me, and at the same time we have a bit of a bull market anyway thanks to the largish amount of Asian immigration and foreign real estate investment. Also, some N Zers returning home since 2001 has helped keep prices in Auckland up as well.

But with interest rates staying high, interest in housing starts to subside, and so RBNZ can start priming the pump again with lowered interest rates, which in turn means the Japanese housewives among others pull their money out of NZ which leaves the NZ dollar slumping, because the economy needs lower interest rates to be competitive for industry, but at the same time that reduces the value of the dollar as foreign money flows out...question is whether NZ can go through a boom of making or servicing things again like it used to, or will the dollar stay where it is now?

I say not. The monolith that is Fonterra is doing ok, but it is (from what I saw when I dealt with them years back as a supplier) arrogant, not that efficient and overstaffed. The large NZ companies like Telecom are struggling. The SMEs that are the growth engine of NZ are either increasingly moving overseas (e.g. the NZ boatbuilding industry) or have sold out (e.g. Trademe). And that leaves NZ about where it is now; the dollar has dropped already, and it isn't about to leap back up to 76c to 1 USD.

I'd say tourism, movie shooting and the like will do just fine with the dollar about where it is now. but the country is struggling a bit, and I cannot see interest rates shooting up. Property market will slide quite a bit in both NZ and Aussie; the yields are not there to support much of the investment, but as always right location will do just fine.

Aussie $$$ a better bet short term and long term (and I am NOT an Australian).

[Vegemite]

Why dont more people invest into a Kiwi $ time deposit account? Seems in these turbulant economic times 6-7% interest would be a safe and stable investment?

I have been getting 7.3% P.A. for the last year, and still can, for 5 or 6 month terms on any amount over NZ$5000.

Made close to 12% in 3 months on the Kiwi dropping against the USD.

Reserve banks statement last week said interest rates will stay the same for some time and economists are picking the middle of next year before any drop. Inflation is around 4% mainly because of oil. The RBs target band is 1 - 3%.

NZD is now quite stable.

P.S. Steveromagnino

Do you think that Kiwis addiction to property may have something to do with good capital gains over the long term and no capital gains tax?

[steveromagnino]

P.S. Steveromagnino

Do you think that Kiwis addiction to property may have something to do with good capital gains over the long term and no capital gains tax?

Yep, too true; also immigration in the last few years has been propping things up... however you have to look at the market now and ask whether on average the rent yields justify the valuations...in the case of the inner city you'd say no for a lot of the little dungeons built lately, and that's why the apartment/slum market has slumped. For the newly constructed stuff, there is all the concern of leaky building.

Then again on the flip side, you have this mandatory guardian bit in play now, which virtually encourages/forces the family to also have at least a parent out here to take care of their kiddies; I suppose that might prop things up a little longer; but you'd be hard pressed to bank that the last few years of double digit growth in parts of AUckland can be expected to continue.

Almost all my mother's non-Thai friends plus most of the Thai friends we have in Auckland all have most of their money tied up in rental properties for the tax benefits you mention. But the portfolios are unbalanced; only my mother has money in any thing else; the rest are pretty much only in property. Fine in the last 10 years, but they've suffered with the drop of the NZD and a few are going to be stuck with dog leaky properties or cruddy doghouse apartments. Property is ALWAYS a great bet in almost any market if you have the right property in terms of price location and so on. Less so in a tough market (like now).

I am not sure if you are down there or not...is this how you see it or is there something I am missing here (located 10 hours flight from AKL)?

When you say you made 12%; you were also buying futures, or you invested abroad and brought back to NZD or what? I am well happy; bought a boat at 23.5b just last week; had been looking at the same boat last year; back then when economy was stronger is was $20k NZD, I got it for quite a bit cheaper than that, plus made on the currency gain too :-)

[KhunPadThai]

In addition to the substantial currency risk in NZ already discussed, there is the additional risk of bank failure. There is no depositor's insurance in New Zealand. Bank fails; you lose your money.

[bmanly]

Australian interest rates have just gone up to 6% and virtually any online account will now be paying 6% for your deposits. I think Australia might get a lot of foreign cash inflow as it is seen as a stable economy. It is also jumping up against the USD unlike the NZD which has fallen in recent months from .68c to .61c.

[Vegemite]

P.S. Steveromagnino

Do you think that Kiwis addiction to property may have something to do with good capital gains over the long term and no capital gains tax?

Yep, too true; also immigration in the last few years has been propping things up... however you have to look at the market now and ask whether on average the rent yields justify the valuations...in the case of the inner city you'd say no for a lot of the little dungeons built lately, and that's why the apartment/slum market has slumped. For the newly constructed stuff, there is all the concern of leaky building.

Then again on the flip side, you have this mandatory guardian bit in play now, which virtually encourages/forces the family to also have at least a parent out here to take care of their kiddies; I suppose that might prop things up a little longer; but you'd be hard pressed to bank that the last few years of double digit growth in parts of AUckland can be expected to continue.

Almost all my mother's non-Thai friends plus most of the Thai friends we have in Auckland all have most of their money tied up in rental properties for the tax benefits you mention. But the portfolios are unbalanced; only my mother has money in any thing else; the rest are pretty much only in property. Fine in the last 10 years, but they've suffered with the drop of the NZD and a few are going to be stuck with dog leaky properties or cruddy doghouse apartments. Property is ALWAYS a great bet in almost any market if you have the right property in terms of price location and so on. Less so in a tough market (like now).

I am not sure if you are down there or not...is this how you see it or is there something I am missing here (located 10 hours flight from AKL)?

When you say you made 12%; you were also buying futures, or you invested abroad and brought back to NZD or what? I am well happy; bought a boat at 23.5b just last week; had been looking at the same boat last year; back then when economy was stronger is was $20k NZD, I got it for quite a bit cheaper than that, plus made on the currency gain too :-)

As usual the RBNZ will hold interst rates up for to long and everything will come crashing down again. Have seen it to many times before. A lot of people will be burnt on property for sure.

But what I am trying to say, is that because of this stop start mentality by the reserve bank, the interest rates will stay high for longer than they should. It takes them at least 6 months to figure out what is going on.

At the moment Kiwi bank are offering 7.3% for 6 months and most others 7.2%.

I made close to 12% in 3 months with a foriegn exchange account in USD. I am not normally a trader but couldnt resist a sure thing.

I am sure that I told you in this forum that this was going to happen some time ago.

I am based in Auckland so the low dollar has a down side when we travel to Thailand now but maybe the baht will drop futher.

[steveromagnino]

I am sure that I told you in this forum that this was going to happen some time ago.

I am based in Auckland so the low dollar has a down side when we travel to Thailand now but maybe the baht will drop futher.

Yep, and as a result, I pulled my money out of NZ at 29b, and recently sort of put a bit back by buying a boat in NZ at 23.4b I think it was; not bad not bad; thanks for that.

To the poster regarding bank insurance; the govt has previously stepped in to prevent BNZ from going bankrupt, however whether they would do so again who knows; I was not aware there was no depositor insurance for banks, there definitely wasn't for the building society (which is similar to a bank) that my brother saved all his money in in NZ.

In 1987, it was part of a corporate raider conglomorate that went bust, and my brother, having worked and saved religiously since about age 10 was reduced from having I think it was about $8k NZD at the age of 16 (which is quite a sum) to eventually getting paid out at I think it was $0.08c to each $1. I bet he wished he had blown it on beer and girlies instead!