September Wrap Up - Rockstar to rock bottom

I love New Zealand. Our mountains, rivers and seas, the smiles that greet you wherever you go. We are lucky. Unfortunately, natural beauty and kind people don’t necessarily translate into an economy that grows and that provides the standard of living we strive for. 

Weak economic growth, with last quarter’s GDP decline of 0.9% being an unfortunate lowlight, has translated into poor returns for New Zealand shares and the New Zealand dollar. While I remain optimistic about the resilience of Kiwi to adapt, build valuable new businesses, and drive productive economic growth, the performance of our home market is an important reminder of the need to build well-diversified portfolios.  

Smart diversification includes not just assets from overseas, but also diversifying away from overexposure to the New Zealand dollar. Doing this helps us generate stronger risk-adjusted returns over time, which helps to build and protect your wealth. These principles are baked into every ASB investment portfolio.

It was a nasty surprise. On 18 September, New Zealand Q2 Gross Domestic Product (GDP) data was released. While there are nuances to the number, the headline was that our economy shrank by 0.9% for the quarter to 30 June 2025, capping off a year where production-based GDP fell by 1.1%.

Poor economic performance has unfortunately been a recurring theme. Over the past three years, New Zealand’s economic growth has been 0.5% p.a., and the economy is 1.6% smaller than it was in March 2024. In contrast, the real rock star economies, like the US, have grown by 2.7% p.a. over the same period.

These are not just numbers on a page or of academic interest only to economists. Weaker growth, or worse still, outright recession, affects our standard of living; it affects the education our children receive and the standard of healthcare if we are sick. 

As investors, it translates through to asset returns. At the same time as we experienced weak growth, the New Zealand share market performed poorly relative to overseas markets. Over the five years to 30 September 2025, the S&P/NZX 50 Gross Index rose 2.5% p.a  . Compare this to the World index up 17.4% p.a. (as measured by MSCI World Net Index return in NZD)  , or as we know the very strong US share market, S&P 500 (in USD terms) up 16.5% p.a.   Similarly, other domestic assets like housing have performed poorly, with the REINZ median house price lifting a modest 2% p.a. over the past five years, and nearly 18% below the 2021 peak.

We invest to build a nest egg for the future. The goal of that nest egg is to be able to purchase the goods and services we will eventually need or desire. Much of what we purchase comes from outside of New Zealand or is priced in international markets or in offshore currency terms. That includes obvious things like the hard goods we import, such as cars or TVs, but it is far more subtle—right down to the ever-more-expensive butter we buy at the supermarket.

Weak economic growth, relative to trading partners, tends to mean a weak currency. And a weak currency means we can afford fewer of those things purchased or priced outside of New Zealand. This has had a material impact on all of us. Over the past five years the New Zealand dollar has fallen 12% against the US dollar. Against a trade weighted basket, it has fallen by 6%.

In essence, we have become poorer on the global stage, and if our wealth were concentrated solely in New Zealand, our nest egg would purchase fewer of those things we need or desire.

The past few years have provided an important case study on the value of diversification. Most Kiwi are heavily exposed to the fortunes of the New Zealand economy. If we are fortunate enough to own a home, it is likely to be the most valuable asset we own. We are exposed to the value of the currency, and for many of us, our job security and income growth are inextricably linked to how the economy performs.

In investment terms we are very “long” in New Zealand. That’s great if New Zealand does well, but it leaves us vulnerable if it doesn’t.

While we can’t solve all of New Zealand’s challenges—we’ll leave that to much smarter people—we can help manage some of the typical New Zealand-centric risks investors face in how we build investment portfolios.

We do this in a number of ways. The most obvious of these is not having capital tied up solely in New Zealand, but sensibly diversifying portfolios into global markets, including Emerging Markets. This has the benefit of reducing, for most of us, our natural bias to New Zealand assets, and gives us exposure to economies that may be performing better than New Zealand’s. On top of that, it gives our investors exposure to companies and industries that we simply don’t have the chance to invest in here.

Diversification is more subtle than that though. By having an exposure to offshore currencies, like the US dollar, the Euro and Yen and more recently in ASB portfolios, to gold, we help protect you from weakness in the New Zealand dollar and help maintain and grow your global purchasing power. 

While we hope that the recent easing in monetary policy and the ingenuity of smart businesspeople return New Zealand to rock star territory, we won’t bet on that in our portfolios and will continue to provide you with a thoughtfully designed, diversified strategy. And to cue the dad joke, that is a rock-solid way of investing!

Frank Jasper, Chief Investment Officer