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Brokers to investors: Buy NZ not bye NZ

By Nick Stride

Friday 8th September 2000

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New research has ranked New Zealand's SE40 the worst in the world - but it also found this country is in the top 10 for potential economic growth.

The data from broking house Merill Lynch, dated August 30, shows the NZSE40 share price index has lost 25% this year, ranking it bottom among 32 countries surveyed. That puts us behind Korea (down 19%), Turkey (down 23%) and Greece (down 18%).

But Merrill Lynch's global ranking system, which rates countries' long-term growth potential, revealed some good news, placing New Zealand seventh among 35 countries.

The system ranks economies in five categories - capital supply, technology, people, government and risks - judged to be the key measures of economic growth potential.

Sweden comes top with an overall score of 362.8. New Zealand, at 330.6, comes behind Singapore, Australia, the US, Canada and Holland.

At the bottom is Russia with a score of 148.8.

Merrill Lynch has back-tested its ranking system against historical gross domestic product growth and claims there is a strong correlation both with economic growth and share price growth.

It says investors can use the rankings to identify profitable opportunity in countries that might not look attractive today.

But it warns "judgment is then needed in deciding whether to trade on this gap or whether it stems from a persistent special factor not captured by our ranking system."

New Zealand's best rankings, at eighth place for each, were in capital supply (savings rates and capital market performance) and risks (potential sources of economic instability).

We ranked ninth in government policy and social structure and 10th in people (the supply and quality of human resources). In scientific and technological capacity, which has the strongest impact on country rankings, we came 13th.

Meanwhile, business services group Dun & Bradstreet's third-quarter business confidence survey showed a huge drop in New Zealand business confidence. The net percentage of respondents expecting higher sales over the September quarter fell from 42 to just 20 while profit expectations collapsed even further, from 31% to 5%.

Commentators and analysts have blamed the sharemarket's dire performance, and record lows for the New Zealand dollar, on a lack of interest from international investors.

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