The New Zealand Superannuation Fund has warned it could lose more than half its value if there was a repeat of the Global Financial Crisis (GFC).
The Super Fund released its annual report on Thursday amid severe market turbulence in the United States and corresponding losses here.
New Zealand's benchmark Top 50 index fell 2.3 percent on Thursday morning, in response to what some are calling a "bloodbath" on Wall Street.
US stocks tumbled on Wednesday, with the S&P 500 and the Dow marking their biggest daily declines since February 8, while technology stocks plunged as rising US Treasury yields sent investors packing.
The S&P 500 lost 3.29 percent, the Dow Jones Industrial Average fell 3.15 percent, and the Nasdaq Composite dropped 4.08 percent.
Stockmarkets have been on a long bull run since the GFC struck in 2007 - and plenty have been predicting it couldn't last.
In its annual report, the Super Fund said "we estimate the Fund would lose $20.3 billion (-52.6 percent) in a repeat of the GFC".
Economist Shamubeel Eaqub says it won't be clear for a few weeks yet whether this is just a blip, or something more sustained.
"Stockmarkets are a very good indicator of greed versus fear," he told Newshub.
Either confident investors are driving stocks up, or - when that confidence disappears - it turns into fear.
"It feels like that's the shift that we have seen," Mr Eaqub said.
"It feels like the confident economic outlook has weakened, rising interest rates - all those other bits and pieces are coming together - and people are really worried that current share prices might be too high."
US President Donald Trump says the share market sell-off was in fact a long-awaited "correction" and the Federal Reserve, which has been raising US interest rates, had gone "crazy".
"Actually it's a correction that we've been waiting for a long time but I really disagree with what the Fed is doing," President Trump said. "I think the Fed has gone crazy."
President Trump's use of the word "correction" to describe the sell-off could be significant. A share market correction is defined as a fall of at least 10 percent from the high point of the past 52 weeks.
Mr Eaqub isn't so sure, and we'll have to wait and see.
"Whether the President calls it a correction or not doesn't matter, the question is: is the sharemarket falling? If prices are falling, quite often what we'll see is this fear spreads and people... sell in a panic, and that feeds the cycle," he said.
The Super Fund maintains it's in it for the long-term, and will recover any losses and make more gains - as the Fund did after 2008 - and even buy more growth assets as they fall in value.
Mr Eaqub is sanguine about the Fund's fortunes across ebbs and flows in global sharemarkets.
If there is continuing carnage in the US and it spreads to global stockmarkets, he says there are a number of ramifications for this country.
If the New Zealand dollar falls, that's better for exporters but worse for consumers, with imported goods such as petrol and electronics rising in price.
That would likely mean inflation would likely raise its head again finally, but the Reserve Bank can cut interest rates - unlike many other countries that already have rates at record lows (near zero in some cases).
And the Government can increase spending.
"That's what (Finance Minister) Grant Robertson's been talking about, right? That he wants to have his powder dry, so if the global economy weakens, they can put more money into the economy," Mr Eaqub said.
Most New Zealanders' investments in shares are through their KiwiSaver funds, which also have a long-term outlook - to save up for retirement.
"If you look at sharemarkets over time, they go up and down - but on average, they have delivered very good returns over a long period of time.
"So rather than trying to pick the timing of the market, what's more important is to keep putting money into your KiwiSaver.
"[It's] the contributions and the long-standing nature of savings - that's what really gives you the biggest returns."
Newshub. / Reuters
