The Scary Legacy of 1987

Sunday 29 August 2004

A feature of the New Zealand share market is how many ordinary people won’t go near it. They simply won’t forget 1987. The New Zealand share market suffered bad press after the 1987 crash, not simply because of the spectacular failures of a number of property and investment companies but through the bad-mouthing of politicians like Jim Anderton. He coined the expression, "the wild west without a sheriff", suggesting that if governance rules had been stronger, investors might not have lost their shirts (and shorts).

By The Landlord

Other markets suffered heavy losses in 1987 and they recovered quickly, but New Zealand's wounded investors wallowed in misery and suffered more than most. The single biggest factor holding back investment in the New Zealand share market is that when we look back at the market index that existed in 1987, compared with the NZSX40 index that exists today (if you look hard for it), our share market is still some 15% below the level it peaked at in 1987.

On long-term charts, this would translate into the worst share market performance on the planet in the past 50 years, and it weighs heavily on the minds of older investors. But experts contend that the market that existed in 1987 created an artificial spike in the index. This is because massive corporations that were the creation of clever accountants who produced mountains of paper wealth through investment holding vehicles dominated the top ten companies. Most of these went bust in the crash.

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