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Investors' risk appetite dims as global stocks fall

Wednesday 2nd July 2008

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The willingness of investors to take on risk has fallen to a three-month low, reflecting weak global equity markets, according to an index compiled by Bank of New Zealand.

The bank's risk appetite index, which is on a scale of zero to 100%, is currently at 42%, the lowest since March 31, said the bank's currency strategist Danica Hampton.
The index is constructed using emerging market bond spreads and the Chicago Board Options Exchange Volatility Index, or VIX, a measure of the implied volatility of S&P 500 index options.

"A sharp decline in US stock markets, fueled by rapidly rising crude oil prices and fears another bout of asset write downs may be on the way, triggered heightened risk aversion," Hampton wrote in a report.

US stocks had their worst month in six years in June and the Standard & Poor's 500 Index has slid 11% this year. In New Zealand, the NZX 50 Index has slumped almost twice as much, falling 21% since the start of 2008.

The New Zealand dollar weakened against the U.S. dollar and the yen. The kiwi bought 75.76 US cents from 76.24 yesterday. It fell below 80 yen from almost 81 yen.

The New Zealand dollar also declined after Reserve Bank Governor Alan Bollard was reported saying economic growth was probably flat in the second quarter and would only see a tepid pick up this year. The comments were in an interview with Central Bank News.

By Jonathan Underhill

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