Tuesday, October 20, 1987 remains etched in the memory of many New Zealand and Australian investors. Known ever since as Black Tuesday, it was the day confidence in the share market collapsed.
The shock followed events thousands of kilometres away. On Monday, October 19, the Dow Jones Industrial Average plunged 22 per cent in the USA. A few hours later, as markets opened in New Zealand and Australia, investors were uneasy but not yet alarmed. A correction had long been expected.
What followed was no ordinary correction. Selling quickly overwhelmed buying. Panic set in. Investors struggled to reach brokers as phone lines jammed and prices fell relentlessly. By the end of trading on Black Tuesday, the NZ share market had dropped about 15 per cent. The decline didn’t stop there. Over the following months, and years, the market continued to slide, eventually falling to around 40 per cent of its mid-October peak.
Australia experienced a similarly dramatic collapse. The ASX fell about 25 per cent on October 20 and continued lower in subsequent months. Unlike New Zealand, however, the Australian market recovered to pre-crash levels within approximately four years.
What caused the crash, the conditions that led to it, and the lessons that were — and were not — learned are examined in a newly released 6000-plus word report by Henry P. Newrick, founder of the National Business Review and former publisher of The New Zealand Financial Review.
Spread over 19 pages, the report provides a vivid and sobering account of the 1980s sharemarket mania that swept New Zealand and Australia.
It traces how deregulation, easy credit and a growing ‘cult of the deal’ allowed leverage, inflated asset values and exuberant assumptions to overwhelm caution. It also captures Black Tuesday lived experience of ordinary investors, watching share values fall minute by minute.
“The aim is to describe the era honestly — how it looked, how it felt, and what it cost,” said Newrick. “It’s a reminder that markets can turn far faster than anyone expects.”
The Day the Markets Died is available as a free PDF download from the publisher at www.RabPubInfo.com.