Latest / Best of Business / Shamubeel Eaqub: Simplicity Chief Economist predicts other countries will rally together as a result of the Trump tariffs

Transcript

Shamubeel Eaqub: Simplicity Chief Economist predicts other countries will rally together as a result of the Trump tariffs · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News Talk sed B
• 0:12
  Speaker 1: follow this and our wide range of podcasts now on iHeartRadio.
• 0:16
  Speaker 2: To look on not to look? Is that how you're
• 0:19
  Speaker 2: feeling about your kivsaver balance? In recent days, global markets
• 0:23
  Speaker 2: have tumbled since US President Donald Trump's Liberation Day tariffs
• 0:26
  Speaker 2: were announced, with trillions of dollars wiped from world markets.
• 0:29
  Speaker 2: So what impact will these tariffs have on our retirement
• 0:32
  Speaker 2: nest eggs? Do we need to panic about our Kiwi
• 0:34
  Speaker 2: saver balance just yet? To discuss? I'm joined by chief
• 0:37
  Speaker 2: economists for kiwisaver provider Simplicity, Chamubil yakob I Hope I
• 0:43
  Speaker 2: said that correctly. Shame you, Bille, good morning, nice to
• 0:45
  Speaker 2: bear with us.
• 0:46
  Speaker 3: Very well, Francesco, thank you very much.
• 0:49
  Speaker 2: CNN's US Political Commentators says this is the biggest economic
• 0:54
  Speaker 2: policy era of our lifetime. What do you make of
• 0:56
  Speaker 2: that statement?
• 0:58
  Speaker 3: Absolutely agree. We have experimented with tariffs in the eighteen
• 1:02
  Speaker 3: hundreds and the early nineteen hundreds. We really gave it
• 1:05
  Speaker 3: up around the world after the First World War because
• 1:08
  Speaker 3: we had the depression and we saw the extraordinary damage
• 1:11
  Speaker 3: that it does to our own people and to the
• 1:13
  Speaker 3: global economy, But we also don't know if these policies
• 1:18
  Speaker 3: will actually last the distance. There was just so much
• 1:21
  Speaker 3: uncertainty around what Trump will do, what other countries around
• 1:25
  Speaker 3: the world will do, And it's the uncertainty that's as
• 1:28
  Speaker 3: big a problem as the policies themselves.
• 1:31
  Speaker 2: Is this uncharted territory for Kiwi Saber, it is unchatted.
• 1:35
  Speaker 3: So if you recall, kvsiver is very young, it's only
• 1:38
  Speaker 3: been around for a little while. The last time we
• 1:39
  Speaker 3: had a big financial market crash was doing the Global
• 1:42
  Speaker 3: Financial crisis and there was very early on, so none
• 1:45
  Speaker 3: of us really had much money in markets back then.
• 1:48
  Speaker 3: So it is the first test of it. But also
• 1:50
  Speaker 3: what we're seeing is the uncertainty and the moves in
• 1:53
  Speaker 3: the markets are probably as quick and as big as
• 1:57
  Speaker 3: we saw when COVID first started.
• 2:00
  Speaker 2: So, chemmy Bill, what impact have we seen so far
• 2:03
  Speaker 2: in the day since Trump's announced these tariffs.
• 2:05
  Speaker 3: We've seen extraordinary fall off in markets. So you know,
• 2:08
  Speaker 3: all of us will have our different investments and some
• 2:11
  Speaker 3: of them will be exposed to what's happening in financial
• 2:13
  Speaker 3: markets around the world, and equity markets to shares in
• 2:16
  Speaker 3: particular have fallen pretty sharply, particularly in the US, they've
• 2:19
  Speaker 3: done about ten percent in the last few weeks, which
• 2:22
  Speaker 3: is a lot if you think about how much how
• 2:24
  Speaker 3: hard it is to save ten percent or grow your
• 2:26
  Speaker 3: money by ten percent. When that kind of happens in
• 2:28
  Speaker 3: a very short period of time, that does have a
• 2:31
  Speaker 3: very big impact on our balances. But it is paper losses, right,
• 2:34
  Speaker 3: because we haven't sold our shares yet, but on paper
• 2:38
  Speaker 3: it looks like we've gotten worse off.
• 2:40
  Speaker 2: It doesn't help that we already sort of had a
• 2:42
  Speaker 2: volatile start to twenty twenty five, didn't We were already
• 2:44
  Speaker 2: seeing sort of drops and key We say the balances
• 2:47
  Speaker 2: we had, but it's.
• 2:48
  Speaker 3: On the back of very strong growth in markets in
• 2:51
  Speaker 3: recent years. We've had some spectacular years on the back
• 2:54
  Speaker 3: of pandemic. Surprisingly because we had so much stimular so
• 2:58
  Speaker 3: much money going around the economy, we actually got a
• 3:00
  Speaker 3: lot of very strong gains. But you're absolutely right, this
• 3:03
  Speaker 3: year has got enough to a bad start, and it
• 3:05
  Speaker 3: hasn't gotten better in the in recent weeks.
• 3:08
  Speaker 2: So how are providers reacting to the tariffs? What moves
• 3:11
  Speaker 2: are you making?
• 3:13
  Speaker 3: Well? For us At simplicity, it's really important that we
• 3:16
  Speaker 3: stay the course because our investment philosophy is quite simple.
• 3:19
  Speaker 3: Our view is that stick to markets, be patient, be
• 3:22
  Speaker 3: low cost, and on average you'll come out better off
• 3:26
  Speaker 3: because history shows us that we have more good years
• 3:29
  Speaker 3: than bad years. So if you can't time the market,
• 3:32
  Speaker 3: because no one can, then time in the market is
• 3:35
  Speaker 3: what really matters. So we want to make sure that
• 3:37
  Speaker 3: for our members that they're in the right kind of funds,
• 3:40
  Speaker 3: because that's the choice you can make. And number two,
• 3:43
  Speaker 3: we keep on making sure that we're still giving the
• 3:45
  Speaker 3: best possible service we can. It's very hard to predict
• 3:49
  Speaker 3: these unpredictable things and say that we're going to be
• 3:52
  Speaker 3: making the right picks for you and make you rich
• 3:54
  Speaker 3: in this environment. I think that's a full errand, but it's.
• 3:57
  Speaker 2: Worth remembering that because you know, I mentioned this to someone.
• 4:00
  Speaker 2: I said, oh, are you worried about you? Q? Seven?
• 4:01
  Speaker 2: They went, no, why would I be. I'm not retiring
• 4:03
  Speaker 2: for fifteen years. Markets go up and down, you know, so,
• 4:07
  Speaker 2: so I imagine that those who are panicking and maybe looking
• 4:10
  Speaker 2: at you know, hitting sixty five or retiring in the
• 4:12
  Speaker 2: next two to five years, I could totally understand why
• 4:16
  Speaker 2: it's a consumed for them, But for the rest of us, do.
• 4:18
  Speaker 2: We all just need to take a big, deep brief
• 4:19
  Speaker 2: and go. Markets go up, markets go down. It's the
• 4:22
  Speaker 2: long game. Just sit here, we'll get back to where
• 4:25
  Speaker 2: we need to be.
• 4:26
  Speaker 3: Absolutely, for those people who need money soon, either for
• 4:30
  Speaker 3: your retirement or because you've got a first home that
• 4:33
  Speaker 3: you want to buy and you want to access the deposit,
• 4:35
  Speaker 3: it's really important that you're in the right kind of fund.
• 4:37
  Speaker 3: So if you're in a conservative fund or a balance fund,
• 4:40
  Speaker 3: then you wouldn't have been affected nearly as much by
• 4:42
  Speaker 3: the big movements in equity markets because in most balance funds,
• 4:47
  Speaker 3: for example, will have only sixty percent of their portfolio
• 4:50
  Speaker 3: in equities. The others will be in bonds and things
• 4:52
  Speaker 3: which haven't fallen much, if at all, so you would
• 4:55
  Speaker 3: have been quite protected. So there are two things that
• 4:58
  Speaker 3: we can decide as kiy servers, which is around what
• 5:01
  Speaker 3: kind of fund are we in? Is that the right
• 5:03
  Speaker 3: risk for my needs? And the second one is how
• 5:06
  Speaker 3: much do I contribute? So as long as the those
• 5:08
  Speaker 3: two decisions are right, because it's retirement savings rather than
• 5:11
  Speaker 3: short term savings, you'll be fine. Even though we have
• 5:15
  Speaker 3: this market volatively and they do feel scary. But if
• 5:18
  Speaker 3: you take the long view. The history tells us that
• 5:21
  Speaker 3: history doesn't repeat. By the rhymes and the historical experiences,
• 5:24
  Speaker 3: over the long run, you will come out better off.
• 5:27
  Speaker 2: What if you are about to hit sixty five, though,
• 5:29
  Speaker 2: does that become harder to manage?
• 5:31
  Speaker 3: Well, even if you're sixty five, you're probably going to
• 5:34
  Speaker 3: live for another thirty or forty years. The difficulty, of course,
• 5:37
  Speaker 3: is that you may not be contributing for that period
• 5:39
  Speaker 3: of time. So if you're getting older, if you're clo
• 5:42
  Speaker 3: getting nearer your retirement age, it's really important that you're
• 5:45
  Speaker 3: in the right kind of fund. So if you'd think
• 5:47
  Speaker 3: you're going to need that money soon, you should not
• 5:49
  Speaker 3: be in an aggressive fund and you should go and
• 5:51
  Speaker 3: speak to your financial advisor about this buying lunch. You'd
• 5:54
  Speaker 3: be in a more balanced fund or a conservative fund,
• 5:56
  Speaker 3: depending on what your needs are. So that's the choice
• 5:59
  Speaker 3: you can make, and it gives you a huge amount
• 6:01
  Speaker 3: of protection. And it's really important that rather than trying
• 6:04
  Speaker 3: to time the market, we get the right kind of
• 6:06
  Speaker 3: fund that's right for you.
• 6:09
  Speaker 2: There's a large amount of uncertainty around this isn't there
• 6:12
  Speaker 2: and how it plays out and how other countries are
• 6:14
  Speaker 2: going to react or even if you know how Trump
• 6:17
  Speaker 2: handles things going forward, does that make it harder for
• 6:21
  Speaker 2: providers here and managed funds?
• 6:24
  Speaker 3: Absolutely, it makes it hard for everybody. And so if
• 6:26
  Speaker 3: you're trying to understand what's going on in the world,
• 6:29
  Speaker 3: just even as an economist, I find it very uncertain
• 6:32
  Speaker 3: because Trump is extraordarly unpredictable. We don't know if it's
• 6:35
  Speaker 3: actually going to push through with all the tariffs that
• 6:37
  Speaker 3: he has announced in the form for the next however
• 6:40
  Speaker 3: long it might be. We have also seen the retaliation
• 6:43
  Speaker 3: by other countries, so China has imposed retailiatory tariffs, so
• 6:47
  Speaker 3: we're going to see this tit foot ted possibly escalating
• 6:50
  Speaker 3: overcoming days, weeks, and months, and that might have a
• 6:53
  Speaker 3: really big impact on countries like New Zealand because we
• 6:56
  Speaker 3: trade so much with China and the US there are
• 6:59
  Speaker 3: number one and number two trading partners, so there is
• 7:02
  Speaker 3: the kind of direct econ to make effects as well
• 7:04
  Speaker 3: as the impact on financial markets. And again that's why
• 7:07
  Speaker 3: at Simplicity we've taken that very deliberate choice that rather
• 7:11
  Speaker 3: than trying to make active decisions around what we invest
• 7:14
  Speaker 3: in which stocks we invest in, we want to be
• 7:16
  Speaker 3: passive and as hands off as possible, because the market
• 7:20
  Speaker 3: movements are by their definition unpredictable, so we want to
• 7:24
  Speaker 3: make sure that what we're doing instead is giving people
• 7:27
  Speaker 3: the right exposures without adding cost and judgments which might
• 7:31
  Speaker 3: lead us astray.
• 7:32
  Speaker 2: What about mortgage rates, what impact might all this have
• 7:35
  Speaker 2: on them?
• 7:37
  Speaker 3: Well, it's a little bit unpredictable, but my view is
• 7:39
  Speaker 3: that given the increase uncertainty in the world, we will
• 7:42
  Speaker 3: see the reserve band continuing to cut interest rates, which
• 7:45
  Speaker 3: at the margin will put pressure downward pressure on mortgage rates. Now,
• 7:50
  Speaker 3: the only sort of spanner in the works for people
• 7:52
  Speaker 3: who would like to go out and buy something is
• 7:55
  Speaker 3: when things are uncertain, banks become less confident to lend
• 7:59
  Speaker 3: you money, so it might be harder to get the mortgage.
• 8:02
  Speaker 3: But at the margin, I think what we will see
• 8:04
  Speaker 3: as a result of the trade wall is that interest
• 8:08
  Speaker 3: rates on the margin will be lower than otherwise, and
• 8:10
  Speaker 3: mortgageurts will be lower than otherwise.
• 8:12
  Speaker 2: Okay, I saw your comments yesterday that you thought a
• 8:15
  Speaker 2: new club of countries would form around trade out of
• 8:19
  Speaker 2: all this, Can you explain that to me?
• 8:21
  Speaker 3: Absolutely? Because America has essentially become an unreliable partner after
• 8:26
  Speaker 3: being essentially the architect of the global order, the Western
• 8:30
  Speaker 3: Alliance that was built after the Second World War, where
• 8:32
  Speaker 3: they really promoted free trade, rules based order and all
• 8:36
  Speaker 3: those kinds of things, and now essentially Trump has done
• 8:40
  Speaker 3: away with that. But a lot of the other countries,
• 8:43
  Speaker 3: like US, like Europe, like UK like Japan, Korea, a
• 8:47
  Speaker 3: lot of these countries have actually benefited massively from free
• 8:50
  Speaker 3: and open trade. And I think we're going to find
• 8:53
  Speaker 3: a parallel track of countries strengthening the ties on the
• 8:57
  Speaker 3: back of this, and we should because we know that
• 9:00
  Speaker 3: trade that has significant benefits, we have benefited massively from it.
• 9:05
  Speaker 3: If America is not going to be involved, how can
• 9:07
  Speaker 3: we find an another way of doing things where we
• 9:10
  Speaker 3: have deeper ties and even less friction in trade, So
• 9:14
  Speaker 3: then this disruption that we're seeing coming from America can
• 9:18
  Speaker 3: at least be moderated by these other places. And quite
• 9:21
  Speaker 3: often it's going to be just strengthening up existing free
• 9:24
  Speaker 3: trade agreements. And we've got some fabulous quality free trade
• 9:27
  Speaker 3: agreements in New Zealand. It's really about using the excellent
• 9:31
  Speaker 3: talent that we have in our Ministry of Foreign Affairs
• 9:33
  Speaker 3: in trade to go how can we negotiate even better things.
• 9:36
  Speaker 3: So we're getting closer to those a parallel block of
• 9:39
  Speaker 3: countries that still believe in the world that's free of
• 9:42
  Speaker 3: friction when it comes to trade, so.
• 9:44
  Speaker 2: It would be important for us to go with them.
• 9:47
  Speaker 3: I think so. I think this is this is one chance,
• 9:50
  Speaker 3: is that there's a wind of opportunity where we either
• 9:53
  Speaker 3: take the wrong track of going down the protectionist path,
• 9:56
  Speaker 3: which would serve New Zealand very badly, or we choose
• 9:58
  Speaker 3: the path of continuing our leadership of rules based open
• 10:02
  Speaker 3: trade that New Zealand has participated in pretty much over
• 10:05
  Speaker 3: the course of the last eighty years. I think that
• 10:08
  Speaker 3: is a strength, that is our brand, that is our reputation.
• 10:11
  Speaker 3: I think we should lean into it because it will
• 10:13
  Speaker 3: be a benefit for New Zealand consumers and exporters.
• 10:16
  Speaker 2: Sham you, Bill, thank you so much for your time
• 10:18
  Speaker 2: this morning. Really appreciated that was chief economist, the key
• 10:21
  Speaker 2: we save and provided simplicity. Sham you Bill.
• 10:24
  Speaker 1: Yakob For more from News Talks at b listen live
• 10:27
  Speaker 1: on air or online, and keep our shows with you
• 10:30
  Speaker 1: wherever you go with our podcasts on iHeartRadio