OCR shock needed to resuscitate risk
Interest rates may have to sink below 4% before investors begin to move out of cash and into more risky products, according to a panel of industry players.
Wednesday, December 3rd 2008, 5:13AM
by David Chaplin
Clayton Coplestone, principal of Heathcote Investment Partners, told the ASSET panel that “the one catalyst that might influence [retail investors] to part with money again would be if their cash rate suddenly got down to 1-2%”.
“But certainly for the foreseeable future, ie 18 months or so, I just think mum and dad are going to be all about preservation,” Coplestone said.
Auckland-based financial adviser, Murray Weatherston, agreed, saying “perhaps a long term bright spot for people selling other than cash, is in fact that when the cash rate is 2% or 3% people might actually have to start thinking about doing something else”.
“But, until then, I think they will just chase the rates down,” Weatherston said.
Mike Newton, partner of Auckland firm Newton Ross, said if clients remain in cash “then their capacity to recover wealth is going to be in real trouble”. “I really worry when I see people sitting in cash and fixed income saying ‘Oh, this is a safe place to be’ because it is one thing to get out, it is another thing to get back in,” Newton said. “And if you do not get back in then you stand to lose your clients a lot of money.”
The Australian Reserve Bank slashed interest rates by 1% yesterday, its fourth straight month of easing. The Reserve Bank of New Zealand is due to announce its Official Cash Rate (OCR) tomorrow with some observers picking a cut of 150 basis points. The current OCR is 6.5%.
Full coverage of the round table discussion will be published in this month’s edition of ASSET Magazine, due out next week.
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