By Shamubeel Eaqub, Chief Economist - Simplicity Research Hub

Equity markets have fallen sharply in recent days, finally reflecting increased political and policy uncertainty from a Trump government in the US.

Until now, it had seemed that increasing uncertainty and increasing asset prices could go hand in hand. While US S&P500 equity prices have fallen, they are back to where they were in November 2024, and this comes off the back of very strong gains since the beginning of 2023. On an NZD basis, returns have been even more impressive, because of a weakening exchange rate.

Figure 1:  Asset prices continued to increase despite uncertainty since 2023

The on-off-on tariffs have gone from a bargaining chip, to perhaps tariffs after all (for neighbours Mexico and Canada, and larger than initially announced tariffs on China). It's not just tariffs, everything is unpredictable from domestic to foreign policy, and much besides. 

The policies in the US, and the ructions in markets have implications for New Zealand.


KiwiSavers will feel it in their balances

Most obviously, millions of KiwiSaver accounts will be affected by global market prices. This can seem scary but needs to be in context of very strong equity market gains in recent years. Psychologically it's easier said than done: we feel bad news more acutely than good news. There is no easy way to avoid this, other than to acknowledge and understand this bias. 

Further, KiwiSaver is mainly for pension savings: it is a long-term regular savings tool. Retirement savings are of course affected by markets, but by far the biggest driver is regularity of savings. Market volatility is unavoidable, and the lesson of history is that there are more good years than bad. 

For those saving for a first home or nearing retirement, it’s a good time to check (and seek advice) that their savings are in the right kind of product (perhaps a lower risk fund).


Exporters will be on high alert

It matters for our exporters, because the US is our second biggest market. But it's not yet clear what, if any, tariffs will be imposed on NZ exports. The effect on China, our largest trading partners is a concern though. 

The proposed tariffs in the US are likely the highest since the 1940s. While New Zealand remains a trading nation, our exports are more diversified than ever before. We are of course exposed, but our exports go to more destinations and across more commodities than before. Compared to past trade disruptions, New Zealand is better prepared to weather this storm. 

Figure 2: US imposed tariffs have generally been declining since the 1830s

Geopolitics and foreign policy

A bigger concern is the broader ripping up of how global diplomacy and trade had been conducted in the post WW2 era, where the Western Alliance established and enforced a more rules-based approach to trade. This benefited New Zealand in being able to both benefit from rising global trade and a broader security umbrella.

What comes next is less clear, but it appears to be a world where the politics and policies will be less predictable, and there will be more conflict. Security cannot be taken for granted, and governments around the world will likely borrow and spend more on defence. Which will increase the cost of government borrowing and interest rates more generally. It could also keep shipping costs high for the foreseeable future, as it now includes more security risk.


So, what to do?

There is little we can do about what is happening with tariffs in America. But we can take stock of our investments, savings habits and how we consume news (for me, it is increasingly with deep breaths and in small bites).

It can feel debilitating to watch bad news, but reaching out to family, friends or colleagues to make sense of world can help. It does not mean convincing others of what you think, more shared processing of a changed world.

It can also pay to think carefully about how it affects you directly, when, and considering what you can do about it.

This may not solve everything, but it has helped me see that while many things in the world currently feel frightening in an irrational way, I still have many good people and good things in my life. I can still celebrate those, even if the news is something I don’t want to watch. Take care.

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