Friday 18th August 2000
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Chart 1: ASX gold index
Chart 2: Gold index rate of change
Chart 3: ASX Asian listings index
Chart 4: Asian listings rate of change
The fad to turn Australian is starting to bite deeper into the New Zealand collective psyche.
While closer relations with Australia are desirable, they should not be pursued for the wrong reasons.
Pessimism about New Zealand's outlook is a temporary phenomenon that could fade with a change of government. New Zealand has had its confidence battered cumulatively by a decade of eventually unpopular governments under the three bores, Bolger, Shipley and Clark, none of whom have inspirational qualities.
It is successive political rot and not just the present government's decay that has contributed to the sense of futility and frustration progressive New Zealanders feel.
It is still not too late for New Zealand to follow the upward path of Wisconsin under its reformist governor Tommy Thompson in restructuring a disintegrating welfare juggernaut into a thriving small economy. Continued reform aimed at freeing up the private sector comprehensively and eliminating welfare for the able-bodied of working age could see the necessary shift of the population into real jobs that produce widely dispersed economic prosperity.
At that point people might question why New Zealand would want to cosy up to Australia. We could do better to synthesise the effects of union progressively than actually unite to begin with in search of them.
So long as the marginal cost of doing business in New Zealand is significantly lower than in Australia, we might not need to surrender wholly to the beer-and-barbie charms of the hunk next door.
If New Zealand unites with Australia in various ways, it must be for long-term strategic reasons and not because of myopic gripes and grudges.
Currency union with Australia sounds good on the face of it but could cost us the better choice of adopting the greenback as our currency, which would place our monetary management under the US Federal Reserve.
The Cullen proposal of a Clayton's co-citizenship to save New Zealand money on its welfare bills is a non-starter. The Australians will want a higher price if they are to subsidise New Zealand, such as our becoming an Australian state which their confederation law allows.
Then we would lose our own independent trade, defence and foreign policy options. Canberra would call the shots, which could be a slight improvement on Wellington if it meant our own politicians were banished to the Australian desert.
A key reform that keeps getting missed is the change to the share dividend taxation regime under which New Zealand's imputation credits and Australian franks are not mutually recognised transtasman, leading to double taxation of dividend income. Ironing out this problem could free up capital flows between the two countries.
If the Australians will not budge, New Zealand should unilaterally announce it will recognise tax deductibility of franks, which should encourage kiwi investment flows into Australia and earn this country more foreign exchange by way of dividends.
A contingent economic benefit would be that local equity investment would have to offer terms at least as good as can be found in Australia to woo investor support, which would raise the quality of equity here.
Transtasman sharemarket union would be a positive step but the NZSE may be flatfooted anyway as internet technology and Australian investment firms setting up shop here herd Kiwis' investment dollars across the ditch and into the waiting arms of the Australian Stock Exchange.
The great success of AMP's Winz fund shows many New Zealanders recognise the need to get their funds invested overseas sharemarkets, in relation to which fund the NZSE is no more than a convenient flea market for transacting units. The ASX would do just as well for that purpose. Winz represents a vote of confidence in overseas equities, not the local sharemarket.
New Zealand investors will need to look offshore much more until this economy is reformed sufficiently to improve its risk and return characteristics.
Right now New Zealand is going the wrong way. Any country that destroys its best to serve its least is doomed.
New Zealand's most promising companies and individuals are leaving in pursuit of better offshore opportunities presented by the post-communist outside world.
Even ex-communist Russia has just introduced a flat income tax rate of 13% to increase state revenues, lower tax evasion and reduce foreign debt, while our own proto-Stalinist Labour-Alliance soviet has imposed a 39% shakedown tax on those who might otherwise build local capital through savings or increase employment by consumption.
Envy breeds poverty when it becomes state policy.
As envy rules the roost, New Zealand investors will lead the exodus of people and capital abroad to new prospects and get their money offshore, if not themselves.
It is then encouraging to look across the Tasman at an informative sharemarket well served by multiple listings and various sectoral indices designed to track aggregate business fortunes selectively by industry.
This week two such indices are considered with some technical indicators derived from them.
Chart 1 shows the Australian Stock Exchange's gold index. This graph was mistakenly omitted from last week's column. Gold has had a hard time for some years but if the ASX index is anything to go by there is upturn in the offing.
The index has a 40-day exponential moving average plotted across it. That the index has lifted above its average suggests momentum favours continuation of gold stock uptrend.
Chart 2 shows the price rate-of-change (ROC) of the gold index. This measure is plotted around a 40-day basis, meaning it expresses current price as a percentage change on the price 40 days previously.
On a 40-day ROC basis the gold index has been picking up speed by moving into positive territory.
The ASX Asian listings index is depicted in chart 3. This sectoral measure appears gloomy and tracks beneath its 40 day average.
Concerns about a New Zealand-style currency collapse dog a number of Asian countries. Reforms some of these countries undertook after the 1997 Asian economic crisis were merely cosmetic, beneath which chronic bad debt problems and weak commercial law subverted by corrupt cronyism and misplaced nationalism have not been addressed with sufficient surgical rigour. Western capital is ill-advised to seek a home in such countries yet.
The ROC graph (chart 4) for the ASX Asian index bears out the poor showing of the index itself. Percentage price change started to lift for a time recently but since then progress has broken down.
The ASX sectoral indices, when subjected to technical analysis, become useful guides to the parts of the Australian sharemarket in which investors should go hunting.
Right now gold stocks appear interesting while Asian listings seem unappealing.
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