New Zealand's benchmark stock index is headed for a 22 per cent gain this year as investors chased growth stories ranging from infant formula to technology and tourism. Headwinds may prevent a repeat in 2018.

The S&P/NZX 50 Index hit a record high of 8401 this year and is on track for the best performance since 2012, in line with many other global indices.

Mark Lister, head of private wealth research at Craigs Investment Partners, says that while investors will be happy, this year's growth has to be considered in the context of last year's declines. Between September and November 2016, the NZX 50 dropped as much as 12 per cent from its then-record 7571.1 on September 7.

The first part of this year's gains was "more of a rebound than us going onwards and upwards", Lister said, and about 5 per cent of this year's gains came from dividends, which are included in New Zealand's benchmark index though they are excluded from many indices around the world.

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Risks ignored

The benchmark index was unperturbed by the general election in September although a predicted slowing economy in the year ahead could take some money off the table, Lister said.

"The housing market is probably going to go sideways rather than up, that will probably put the brakes on consumer spending. Migration continues tapering off a little bit and we've got policy change which creates a bit of uncertainty," he said.

"What you'll see is the pace of growth will slow and some of our tailwinds will lose a bit of steam. Next year might be a bit more subdued, higher volatility and the pace of growth might be a bit lower.

"There is also lots of global risk - some markets around the world are at much higher highs than ours and there is certainly no shortage of risk offshore," he said. "There is all manner of things that could hit us next year. It's definitely a time for being a little bit more cautious and conservative."

The Reserve Bank's November forecasts have quarterly economic growth rising to 1.2 per cent in the first three months of 2018, before slowing to 0.7 per cent in the last two quarters.

Market performers

The top performer on the NZX 50 this year has been a2 Milk, which has soared 278 per cent to $8.05, while its production partner Synlait Milk has gained 132 per cent to $7.25.

The two milk stocks have moved in tandem for much of the year, despite the businesses being quite different - a2 markets its A2-protein branded milk products, particularly in the form of baby formula, while Synlait is a dairy processor. A2 owns about 8 per cent of Synlait, which supplies its dairy products. The share prices seem to have decoupled of late, but both have benefited from strong demand in China for a2's products, each reaching record highs during the year.

Other top performers this year include Fisher & Paykel Healthcare, up 64 per cent this year; Tourism Holdings, which has gained 49 per cent; Air New Zealand, which has risen 45 per cent; and Scales Corp, up 39 per cent.

"What all of the companies have in common is they are real growth stories - be it by technology and software, branded products like infant formula or healthcare products, or tourism - that sector has had a very strong year," Lister said. "There has been loads of really strong returns from particularly growth stocks."

Xero's farewell

One of the notable stocks of the year has been one which is no longer a member of the NZX 50 - Xero ditched the local index this month in favour of listing solely on the Australian stock exchange.

Its management has long criticised Kiwi media and analyst coverage as overly negative, and said the shift would increase Xero's relevance "to a more diverse range of large investors".

The stock has dropped 7 per cent since the company said it was leaving, though it has gained 77 per cent in the year and will keep trading on the main board until January 31. Xero has been replaced by another tech stock, Pushpay Holdings, which has gained 195 per cent this year, making it the second-best performer on the NZX 50, as its charitable giving app gains ground in the US. Pushpay itself is planning a US listing and probably a capital raising within the next 15 months, but says that won't mean delisting from the NZX or ASX.

Stockmarket operator NZX has seen its own share price rise 7 per cent over 2017, a year in which the company undertook a five-month operational review. It released a new strategy in November, which it said was a fundamental reset of the business to drive shareholder value and reinvigorate New Zealand's capital markets.

The market has had just one initial public offering this year - from Oceania Healthcare - though Vodafone New Zealand is a strong contender for an IPO next year.

"It's something NZX is going to have to think about pretty carefully, how to generate new listings," Lister said. "We've got all of this KiwiSaver money that's growing every week, every month, and that needs to go somewhere. A lot of it goes offshore. Because we have a small market, investors have to turn their attention to international opportunities, but we'd like to support local companies that are growing. It's not simply 'oh the NZX has done a bad job', it's not as simple as that."

Market laggards

Despite the building boom, construction stocks have not fared as well this year. Metro Performance Glass has plunged 48 per cent, making it the worst performer, while Fletcher Building is down 28 per cent.

"Metro Performance Glass and Fletcher Building do stand out," Lister said.

"Earnings downgrades, more than one, all the issues with the construction division, change of CEO and other executives - a really rough year for Fletchers, and Metro Glass has been worse again. They've had a shocker, they've really disappointed the market and haven't been able to deliver at all on expectations."

Lister said investors had learned that a macro tailwind such as a construction boom did not equate to success from every firm in that industry.

"There are two sides to it - the industry can be in the right position, but the company needs to do a lot of things right," he said.

"Fletchers is an interesting one. If you take out the B+I division, they've actually gone okay, the other divisions are doing fine.

"Placemakers is selling loads of stuff. It's not right across the board, it's just that Fletchers is a big company these days and with one division having made some pretty horrendous judgment calls about contract pricing, that's dragged down all the other divisions.

There are lessons for investors and management alike." Sky Network Television was the second-worst performer, falling 38 per cent.

The pay-TV operator was knocked back by the Commerce Commission over a planned merger with Vodafone New Zealand and its shares dropped further in August after it reported annual profit slumped 21 per cent to $116 million as revenue dropped and increasingly expensive content squeezed its margins.

Outside the NZX 50, Serko has soared 624 per cent, last trading at $2.10. The online travel booking software developer has made most of those gains since October, when it posted its first mid-year profit and reiterated its expectation of a maiden annual profit.

• Prices correct as of Thursday December 21