Pro Finance

Here we go again

Let’s not talk up a recession

New Zealand, it seems, is leading the world in its handling of the Covid-19 crisis. Although none of us have a crystal ball, we are in a much better position than most nations, many of whom are suffering under the pressure of vast numbers of new cases and struggling economies.

Over the last few months I have observed economists, investors and market commentators sway between downright pessimism and euphoria. The happy medium is that there has been good growth in many asset classes during 2020, not least of which has been in the mortgage trust arena.

What now?

The Reserve Bank recently announced a funding for lending programme will be ready for the end of 2020. This will involve the Reserve Bank directly funding bank lending at a set low interest rate, which may add to the downward trend in bank lending and term deposit rates.

As house prices continue to rise it appears the Reserve Bank believes that it is better to over stimulate the economy than not. Ultimately more money is likely to flow into assets like residential property, shares and mortgage funds.

Although the global economy is slowing down, some economists believe that this does not necessarily mean that a financial crisis at home is looming and the Government, which is about to start its second term in office, has indicated that it will take extra steps to support the economy.

I firmly believe that we should not be talking ourselves into a recession. Let’s be honest here, people are spending their hard-earned cash; they are not travelling overseas because they can’t, but they are travelling domestically and do want to support local businesses and invest as asset prices continue to rise.

Pessimism in New Zealand seems to be easing. Kiwis are refocusing on their nest eggs and looking to the future, just as they should be. Many people have recognised that although our economy may take a few years to regain its full momentum there are still many opportunities to be had. Midland’s continues to fund various property orientated growth activities throughout the country.  There is good demand in the marketplace for lending products and as banks continue to reward their savers with meagre returns, we are seeing increasing interest in our fund.

In summary, I think we should all be looking firmly to the future, whilst understanding that there may be some challenges ahead. There is a continued trend of investors looking for reliable returns over and above bank deposit rates. The recent closure of Bonus Bonds has also fuelled interest in cash-type investments. Should you wish to discuss any of my thoughts detailed above, then please do not hesitate to get in touch.