Investment lessons from the Nepalese earthquake disaster

iStock 000007885287Medium cut-688The recent Nepalese earthquake is nothing short of a humanitarian disaster and our hearts go out to those who have suffered a loss. Nepal is at the other end of the economic scale to New Zealand. Its people are desperately poor whilst New Zealanders live in relative luxury. However, in many respects, it is very similar to New Zealand. Both countries are heavily dependent on tourism - both possessing immense natural beauty, and both have over 70% of their income derived from just a handful of economic activities. For Nepal, tourism is the single largest source of foreign exchange. This makes the economy very vulnerable to anything which will reduce the flow of tourist dollars – events like the disastrous April 2015 earthquake and aftershocks. It will be hard enough for Nepal to recover from the disaster but this is compounded when the number one industry and revenue generator is also impacted.

New Zealand is recovering from the Christchurch earthquake because people had insurance, the earthquake was regional, it did not hit Auckland, and our national sources of income remained fully functional. Just imagine what sort of disaster our economy would face if we were afflicted with the dreaded ‘foot and mouth’ disease, a major volcanic eruption destroyed a major part of Auckland, a two year drought covered the entire country, or a series of diseases or insects destroyed other parts of our agriculture industry.

We need not be alarmist as our government departments work hard to protect our country and the economy from these all too real risks. However, it is always prudent to not have all one’s eggs in the one basket - even a basket as beautiful as New Zealand. With our dollar high against the currencies we might want to invest into, plus our local sharemarket being regarded by many commentators as being pretty pricey, now might be a very good time to be investing offshore - especially into those economies which have been behind New Zealand in the economic recovery and where relative prices for high quality shares are low.

Talk to us now about adding greater diversification to your investment portfolio and potentially improving your longer term investment returns, without taking a higher risk, by investing into quality managed funds that invest globally.