Twenty-five years ago today the NZX plunged 14.7 per cent as New Zealand’s greatest financial bubble came to a sorry end.

The collapse concluded the 1980s sharemarket boom which had entranced the country.

Fortunes evaporated as share prices crumbled with 181 companies delisting from the NZX in the following four years, most of them in receivership.

Investors turned their back on the sharemarket and diverted their attention to residential property.

We haven’t fully recovered from the 1987 crash and Fisher & Paykel is the only 1987 top 30 company to remain listed.

The stockbroking industry is a shadow of its former self and many of our major financial institutions, particularly the Bank of New Zealand, fell into foreign hands as a consequence of the meltdown.

The NZX was the main topic of conversation in the 1980s as housing is today.

The market’s performance was a regular feature on the front page of the Herald and it was the main, and sometimes only, conversation at parties and over dinner.

The benchmark Barclays Index – a capital index excluding dividends – surged 116.8 per cent in 1983, 12.7 per cent the following year, 31.4 per cent in 1985 and 99.2 per cent in 1986.

Brierley Investments, Chase Corporation, Equiticorp, Robt. Jones Investments, Renouf Corporation and Capital Markets led the euphoria. Annual meetings were packed as chief executives were given superstar status.

There was no criticism of director fees or executive remuneration.

New Zealanders were becoming extremely wealthy on the back of the booming sharemarket.

Share clubs were a dime a dozen and there were a huge number of IPOs; 27 in 1983, 31 the following year, 33 in 1985 and 50 and 65 in the next two years.

The euphoria, and greed, reached a peak at the end of 1986 with the IPOs of Judge Corporation and European Pacific Investments. Judge Corp had its origins in the small listed Christchurch engineering company J Mercer Industries which issued 30 million shares to Bruce Judge at 50c each in consideration of $15 million of his property assets.

The company then issued 10 million new shares to the public at $6 each, giving Judge an immediate IPO price-based paper profit of $165 million on his 30 million shares.

The $165 million profit completely dwarfs the figures in last week’s column on recent IPO paper profits, such as the $22 million for Moa’s Geoff Ross and Grant Baker.

In addition, Judge didn’t have any restrictions on the sale of his Judge Corp shares.

Judge Corp shares listed at $10 each, after a one-for-one bonus, giving Judge an immediate market price-based paper profit of $585 million on his 60 million shares.

In December 1986, European Pacific Investments (EPI) issued 12.5 million shares each to Brierley Investments and Michael Fay’s Capital Markets at $3.90.

These two shareholders then sold 3.5 million shares each to Bank of New Zealand at $8.85 and EPI issued 4 million new shares to the public at $11.85.

This gave Brierley Investments and Capital Markets a realised and IPO price-based paper profit of $177 million.

EPI listed in January 1987 and its shares quickly surged to $40 giving Brierley Investments and Capital Markets a combined market price-based profit of $685 million.

Judge Corp was an investment company and EPI owned the Cook Island banking activities which were later the subject of the infamous Wine-Box Inquiry.

The 1987 year opened on a relatively subdued note with a great deal of discussion about the market’s outlook.

On February 13, the first Shoeshine column appeared in the National Business Review (NBR) and Michael Wilson’s acid wit and sharp analysis was quickly focused on sharemarket operators and their questionable activities.

In March, Shoeshine predicted that Wall Street would take a tumble and “the flow on would inevitably hit New Zealand, and a recovering Barclays Index would be stopped in its tracks and head back down to whence it came”.

Craig Heatly of Rainbow Corporation disagreed with Shoeshine and they had a well-publicised bet about the outlook for the market. There were endless media comments about inside trading, creative accounting, poor disclosure and huge paper profits for IPO promoters.

Meanwhile little of the newly raised equity was going into real projects.

An NBR editorial stated “the global arena is much tougher than New Zealand’s relatively unsophisticated market, where paper shuffling bedazzles many investors”.

The market had one last surge from May 18 to September 18 with the Barclays Index surging 41.1 per cent to an all-time high of 3969 (this capital index, which is now called the NZX50 Index, closed at 2292 this Thursday).

October 1987 was a nervous month because of concerns about the US trade deficit, firming interest rates and the economic outlook.

On Friday, October 16, the Dow Jones Industrial Average (DJIA) fell 4.6 per cent to 2245 on record volume.

This was in response to worse than expected US trade deficit figures.

On Monday, the Barclays Index dropped 4.3 per cent to 3430.

Later that day the DJIA plummeted 22.6 per cent and on Tuesday, October 20, the great NZX bull market came to an abrupt end when the Barclays Index dived 14.7 per cent to 2925. The total value of all NZX shares, which were predominantly New Zealand-owned in those days, declined by 22.3 per cent, from $44.4 billion to $34.5 billion, that unforgettable day.

The fall in the total market value was greater than the Barclays Index because small and medium sized companies fell further than the larger companies included in the index.

By December 21 the Barclays Index had sunk to 1930, less than half its September 18 value, and the total value of all listed shares was only $23.4 billion.

The wealth destruction was enormous, as illustrated by the performance of the NZX’s fifteen largest companies at the end of 1986.

Judge Corporation’s market value plunged by 97.6 per cent in 1987, Chase Corporation sank 90.1 per cent, Renouf Corporation 88.3 per cent, Capital Markets 83.2 per cent and Equiticorp 61.6 per cent.

Judge Corp was worthless when it delisted from the NZX on October 20, 1988, exactly one year after the crash. It was forced to delist after failing to produce its 1988 annual report.

European Pacific Investments was acquired by private interests in October 1989.

The successful offer price was $4.35 a share compared with the $11.85 IPO price.

Financial and property bubbles have been a recurring event over the past few hundred years.

They started with Tulip mania in Holland in the 1630s and have carried on through to the residential property bubble in the United States and many European countries in recent years.

Bubbles usually occur when money is cheap and plentiful, banks are lending aggressively, regulation is poor, there is widespread individual participation and unbridled greed comes to the fore.

The banks played a major role in New Zealand’s sharemarket boom because they were aggressive lenders to the plethora of listed investment and property companies.

Gold is showing signs of a bubble at present as is the New Zealand residential property market.

A decline in the highly leveraged domestic residential property would have a much greater impact on wealth than the 1987 sharemarket crash or the finance company debacle; for example, a 10 per cent fall in New Zealand house prices would wipe out over $60 billion worth of individual wealth.

This compares with losses of just over $20 billion following the 1987 sharemarket crash and $4 billion of finance company losses.

Most investors don’t believe there will be a fall in domestic house prices just as they believed in the 1980s that the New Zealand share prices wouldn’t decline.

That latter opinion was completely destroyed by the sharemarket meltdown 25 years ago today.

1987 crash – A massive destruction of market values

($ million)

Dec 31, 1987


Dec 31, 1986


Brierley Investments





Fletcher Challenge





Chase Corporation





N.Z. Forest Products





N.Z.I. Corporation





Carter Holt Harvey





Wattie Industries










Robt. Jones Investments





Renouf Corporation





Capital Markets





Lion Corporation





L.D. Nathan





Judge Corporation





Rainbow Corporation




(1) Merged with Goodman Fielder  

(2) Successful takeover  by Brierley Investments