It was a surprise. Kiwis were unfazed by Covid shocks to New Zealand and our financial markets.

The Financial Markets Authority did a survey of Kiwis during the worst of the recent market disruption during Level 3 lockdown.

It discovered that 66 per cent of investors were ‘very confident’ or ‘fairly confident’ about our financial markets – in fact, ‘very confident investors’ were at an eight-year high.

That’s good news for the FMA, the body tasked with regulating the markets and keeping Kiwi financial institutions honest.

The FMA’s annual Investor Confidence Survey was done in May, but despite the challenges at that time, the 1003 New Zealanders surveyed were just as confident about our markets in 2020 as they were last year (up from 65 per cent to 66 per cent).

Surge in shares

That confidence was been reflected in a lockdown surge on the New Zealand Stock Exchange, which hit a record in mid-April. Overall, 23 per cent of the FMA survey respondents said they were planning to increase their investments.

Over half of those people (52 per cent) were planning to buy shares, 37 per cent were planning to invest in a managed fund or similar, and 33 per cent were planning to invest in residential property.

Why are we confident?

But why are we feeling so confident?

More than a quarter (27 per cent) of respondents to the FMA’s survey said they had confidence in New Zealand’s ability to bounce back, with another 18 per cent saying our economy was strong and well-positioned compared to other nations.

Most respondents, 71 per cent, felt the pandemic would pass, and markets recover.

Investor enthusiasm is also being buoyed up by the extremely low interest rates available on savings accounts and term deposits.

It doesn’t take much of a return to make an investment look attractive when most banks are offering less than 2 per cent.

The FMA found 29 per cent of investors were looking for opportunities in the market this year, and the NZX top 50 has rebounded strongly since its low in late March.

The property market has also held up surprisingly well, with house prices in June up 9.2 per cent, compared to June 2019, according to CoreLogic data.

Values seem unlikely to drop anywhere near the 10 to 15 per cent predicted back in March.

There could still be struggles

However, it’s possible we’re feeling too optimistic overall.

Many people were concerned about their household income: 45 per cent worried about their personal finances and 28 per cent said they couldn’t afford to think about investing.

If nearly half of us are concerned about impending financial problems, household spending will definitely be down.

With the end of the wage subsidies and mortgage holidays in sight, the recovery for could be slower and more painful than we think.

With borders still closed as at 7 August, a lack of international tourists is going to leave a “5 per cent hole in the GDP”, say ANZ economists, and even more concerning is the fresh community outbreak of Covid-19. It was “inevitable”, according to Ashley Bloomfield, Director-General of Health.

The virus can’t be held at bay forever.

Why is overconfidence a problem?

It’s really encouraging to see how positive people are about New Zealand’s future – and their confidence may be well placed.

If a vaccine is available within the next year, we could soon be reaping the rewards of our newly boosted international reputation.

Even without a vaccine, right now New Zealand’s economy seems to be recovering strongly from the impact of Covid-19.

The risk for individual investors is that overconfident people start to take risks.

Overconfidence has been shown to make investors think they’re better at predicting returns, make them trade more often, and make them more likely to overpay.

That’s because when your investments keep performing well, you start to believe in your own superior skills.

You might be one of those Kiwis who’s feeling really good about the markets – maybe you’ve kept your income, your shares have rebounded, and your house price has stayed high.

That’s fantastic, and you should stay positive. But hold onto your sense of caution.

Think carefully about each investment decision you make, don’t cut corners on your research, and always consider the negative potential consequences as well as the positive ones.