Markets go up most of the time, and New Zealand shares have historically risen in four out of every five years.
The odds of a positive return increase steadily over longer timeframes, reaching 100 per cent when you get to 10-year holding periods.
There’s little point being an investor unless you believe things will get better in the years ahead. I’d argue the same for being in business.
On that note, sentiment seems to have turned a corner recently.
The ANZ Business Outlook for August saw firms’ own activity expectations (which tend to be a good leading indicator for growth) rise to the highest level since December 2021.
Maybe it’s simply due to some better weather, or because it’s getting easier to find staff and wage pressures are beginning to ease.
It might also be related to a shift in the political polls, with National-led governments often seen as being more economically minded and business-friendly.
The upcoming election bodes well for the sharemarket, too.
In the past three decades, we’ve seen the market rise by an average of 2.7 per cent in the three months following an election. When National has come out on top, the average gain has been even higher.
That historical trend hasn’t stopped the typical pre-election investor malaise from setting in, with the NZX 50 index slipping into negative territory in the year to date.
That’s in contrast to the US, UK, Australia and Europe, all of which are up to varying degrees.
At an industry level, the dairy sector is obviously in a difficult spot, and this will weigh on many of our rural communities.
Unsurprisingly, agriculture was more downbeat than most in the ANZ survey, with expected profitability across the sector falling sharply.
In contrast, construction has become more optimistic, which is probably linked to a more stable housing market. This sector has been under immense pressure over the past year, and some optimism is sorely needed.
A more buoyant housing market will boost confidence across the broader economy too.
For most people, their home is their biggest asset, and when it’s falling in value, this dents confidence and impacts spending behaviour.
After slumping almost 20 per cent between November 2021 and May of this year, house prices have rebounded slightly and a more prosperous period is ahead.
Finally, we shouldn’t underestimate the impact of migration.
Net migration hit a new record in the year to July, at levels well above what anyone was predicting at the beginning of the year.
This is a double-edged sword for the economy. Strong migration bodes well for activity and consumer demand, but it puts added pressure on infrastructure, services and the housing market.
From a growth standpoint, the benefits far outweigh the costs, and with a bit of luck, this trend might also alleviate some of our labour shortages.
While high migration creates additional demand (and therefore inflationary pressures), it could also help the Reserve Bank in its quest to bring price pressures down.
It would be much more desirable to see the labour market ease because of new residents entering the workforce, rather than having unemployment rise due to widespread job losses.
We’ve got our fair share of challenges, and the economy is still facing a bumpy path in the months ahead.
It’s natural to focus on these negatives, but we’ve got a few reasons to maintain a glass half-full view as well.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.
