New Zealand’s stock market had lost 60% of its value by February 1988 after Black Monday in 1987. Its decline continued long after many other major markets had begun recovering, making New Zealand one of the crash’s most severe national cases.
The country entered the crash after a mid-1980s boom amplified by financial deregulation, relaxed foreign-exchange controls and aggressive lending. Share prices and commercial property values had risen sharply, while foreign investors were attracted by New Zealand’s relatively high interest rates. The market therefore had substantial exposure when global confidence collapsed.
New Zealand shares fell nearly 15% on the first day of the worldwide crash. Over the next three and a half months, the market’s value was cut in half; by its February 1988 trough, the total loss had reached 60%.
The effects spread into the wider economy. Falling property and share prices damaged borrowers’ collateral, forced deleveraging and weakened financial institutions. The Reserve Bank’s reluctance to loosen monetary policy contributed to a prolonged recession that lasted from 1987 to 1993.