Discuss The Pros And Cons Of New Zealand Investors Choosing To Invest Off-Shore In Today's Environment.
Introduction:
Information from the newspaper The Press shows that the growth of the New Zealand market is expected to drop to 1.9% and with low growth comes higher risk as companies struggle with low demand and low investment.
With the New Zealand economy slowing down New Zealand investors are looking to invest overseas to maximise returns on investments
This essay will discuss the pros and cons of New Zealand investors choosing to invest off-shore.
To do this, we will analyse four aspects affecting offshore investment from the individual's point of view comparing the NZ environment with the overseas environment and discuss how each is likely to change in the future.
These include currency risk, taxation, diversification and market volatility.
It is important to remember that the future speculation of each characteristic is not 100% accurate and is largely based on what has happened in the past.
Currency/Exchange Rate Risk
Recently the NZD has decreased in value especially against the USD and future outlook shows that it is expected to depreciate further. This is favourable for NZ investors that have funds invested overseas.
Currency risk is the risk of the NZD appreciating or depreciating in relation to other currencies, thus changing the value of the investment in NZD terms.
Economists predict that the exchange rate will continue to drop below 0.55 USD. Six months ago the NZD was trading at 0.6978 US and 80.03 Yen (www.rbnz.govt.nz) compared with 0.62 $US now and 73 Yen (www.au.yahoo/finance).
Putting other returns aside, a ten percent drop in the $NZ will increase the value of the investment by ten percent when sold.
NZ investors in general will be predicting the NZ dollar will decrease further and further and so are investing offshore into such markets as the US. This is because greater returns can be made buying offshore and then selling when the NZD is...
Please login to view the full essay...