international investment position as a percentage of gdp has not worsened substantially in recent years. however it will be difficult for new zealand to substantially improve the investment income component of the current account deficit in the short to medium - term because the stock of foreign ownership is already so large. if the $ nz were to weaken in the medium - term in line with many economists ’ predictions, then we would expect to see a further pick - up in foreign investment attracted by cheaper new zealand assets. such a large debtor position, arising out of new zealand ’ s poor savings performance, makes the country more vulnerable to adverse shocks. we are inevitably more exposed to changes in global interest rates or sudden shifts in the investment preferences of overseas investors. at times, this can make it more challenging to maintain price stability and avoid unwanted swings in economic activity. this pattern of household investment also impacts economic performance. if new zealanders fail to identify and invest in higher yielding equity then we condemn ourselves and the country to lower returns, and economic growth will be lower.

last five years. this imposes a heavier mortgage - servicing burden, which has been justified by the big increases in house values. the typical household now commits about 13 percent of its disposable income to service debt. this makes these households much more vulnerable than they used to be to adverse events, such as increases in unemployment and rising interest rates. these debt servicing rates are significantly higher than in other oecd countries. despite this vulnerability, the increases in house values have stimulated a strong wealth effect. households feel richer ( and provided house values hold up, they are richer ), and have been spending with confidence. their confidence is such that they have been prepared to dissave at an unprecedented rate. the preoccupation with housing assets has been at the expense of other assets that one might normally expect to find in balanced household portfolios, namely financial assets, such as equities. this speech highlights the unusually small holdings of equities by new zealanders and some of its financial and economic implications. most of our housing stock is owner - occupied, and our behaviour here is not unusual by oecd standards. in this talk i focus on those households with sufficient resources to consider investments beyond their own occupied houses. many new zealand households are not sufficiently well off to consider much in the way of equity investment. for those that are, a financial advisor would look at a particular set of household circumstances and, depending on these, advise an appropriate balance of holdings split between : • land and buildings in both residential and commercial sectors. • cash and financial debt instruments that might vary by duration and risk. • equity holdings, both direct and portfolio ownership, in private and public firms. these holdings would differ largely depending on variations in income, wealth, household size, composition, and age. the situation is further complicated by the ability to hold assets directly or via managed funds ; by quite different tax treatments ; by decisions to invest in new zealand or overseas ; by commitments in directly held family firms, farms and forests ; and by decisions by the government to hold certain assets jointly on behalf of new zealanders. sources of equity in new zealand it appears that holdings of equity by new zealand households are particularly low by oecd standards, with direct holdings of both domestic and foreign equities making up no more than about 4 percent of total assets. a frequent reason cited is the severity of the october 1987 stock market collapse, an event that passed by 20 years ago. in the us