Academic journal article The Reserve Bank of New Zealand Bulletin

Low Equity Investment Leaves New Zealand Vulnerable: 9 November 2006

Academic journal article The Reserve Bank of New Zealand Bulletin

Low Equity Investment Leaves New Zealand Vulnerable: 9 November 2006

Article excerpt

New Zealanders' low investment in local businesses leaves the economy more vulnerable to shocks and constrains the country's growth prospects, Reserve Bank Governor Alan Bollard said today.

Speaking to the PricewaterhouseCoopers. Annual Tax Conference in Auckland, Dr Bollard said New Zealand investors' preoccupation with housing assets has been at the expense of other assets normally found in household portfolios, such as equities.

The gap has been filled by foreign equity, which brings many development advantages for large businesses, but is less conducive to supporting start-ups and other small businesses. It has also left the economy more vulnerable.

Holdings of equity by New Zealand households are particularly low by OECD standards, with direct holdings of both domestic and foreign equities making up no more than about 4 percent of total assets.

"This limits high-growth, high-risk firms' access to growth capital, particularly important in a market where home bias is strong due to the inevitable uncertainties in assessing start-up / growth firms."

Instead, New Zealanders have spent heavily on investor housing--houses and apartments beyond their own homes--investments stimulated by expectations of exciting capital gains rather than exciting rental yields. …

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