The NZ dollar is down 8.0 per cent this year on a trade weighted basis (which means against a basket of other currencies), while it has fallen 15.7 per cent against the US dollar.
This is a very important shock absorber for us, and it has just as much impact as interest rate cuts, particularly for the export sector.
It also means local investors who are globally diversified will have seen some benefit. While the S&P 500 in the US has fallen 28.7 per cent this year, when the currency is accounted for the decline is a much more modest 15.7 per cent.
Our market is holding up much better than most
The NZX 50 is 23.4 per cent down from its peak, a relatively strong performance compared to others (US and Australian shares are down 31.9 and 32.1 per cent from their record highs).
One reason for this outperformance is the lack of higher-risk sectors on our market, most notably energy which has been the weakest in Australia and the US by a significant margin.
Our market is dominated by healthcare, property, utilities and infrastructure businesses, which are all more defensive in a downturn.
If it wasn't been for the uncertainty over the future of Tiwai Point, the NZX 50 would likely have been even more resilient.
Dairy prices have remained resilient
The headline global dairy trade (GDT) index is now 8.1 per cent lower than where it began the year and 13.0 per cent below where it was at this point in 2019.
READ MORE:
• Premium - Coronavirus: Fonterra, New Zealand is counting on you now like never before
• Fonterra shrinks global aspirations, focuses on home, heart and healthier balance sheet
• Farmgate Milk Price a 'good news story' for Fonterra farmers
• Fonterra's plan for a $1b Indian business
Dairy commodities are priced in US dollars, so the 8.1 per cent fall this year has been more than offset by the 15.7 per cent decline in the NZ dollar against the greenback.
Drought conditions are still troublesome in places, but at least the pricing backdrop should see the Fonterra payout safe this season (at the highest level in six years).
In addition, dairy commodities appear to be relatively unscathed by logistical delays and seem to be getting through to end markets with much more ease than other products.
While our tourism sector is facing extreme challenges, at least our other major export is looking more solidly placed.
China looks to be coming back online
The immediate future is looking bleak for Europe and the US, with efforts to contain the virus outbreak coming at the expense of normal life, economic activity and jobs.
However, anecdotal evidence, feedback from companies doing business in the region and high frequency indicators all suggest China is getting back to normal. Depending on who you ask or which of these you look at, it appears that capacity has returned to the tune of 50 to 80 per cent.
This is a positive development for everyone, given China is the world's second largest economy. It's even better news for New Zealand, with China our biggest trading partner by a reasonable margin.
Our Government's strong balance sheet gives us options
Last, but certainly not least, our Government has a very strong balance sheet.
We have enjoyed a string of prudent, sensible financial custodians from both National and Labour. This has afforded us the option of dipping into the war chest to provide the support that is now required.
Government debt levels will increase substantially over the coming year or two as a result of this, but our very strong starting position leaves us in a much better position than many other countries to deploy this stimulus without overstretching ourselves.
Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.
