Continuous Disclosure: Where are the economic bright spots?

Traders are betting on a better chance of a 0.5 percentage point increase at the Fed meeting, compared to very different predictions a week ago. Photo / Getty Images

An investment fund manager says the fragility of the global economy is being reflected in company results coming through for the first half of the year.

Speaking on the Herald's Continuous Disclosure podcast, Fisher Funds New Zealand equities portfolio manager Matt Peek said more company earnings were proving worse-than-expected than better-than-expected.

The gloom comes as central banks around the world aggressively lift interest rates in a bid to cool inflation.

Peek believed much of the pessimism being experienced now was priced in earlier in the year.

"At the start of the year, share prices fell heavily as we saw interest rates going up more sharply than expected," he said.

"People saw this economic weakness coming. So, it's probably fair to say that a lot of the share price weakness in the first half of the year was in response to stuff that we are starting to see now …

"You only need to see some 'less bad' signs and you might see quite a positive response in the sharemarket."

Peek noted how the United States' inflation figures, which last week surprised on the upside, sent markets up "pretty sharply". "Which I guess goes to show how negative everyone's become on inflation and interest rates, and everyone's sort of positioned quite bearishly," he said.

"Often when you get that setup, it only takes some 'less bad' news, and you can see shares start to outperform again.

"But there's obviously a lot of water to go under that bridge. It's going to be [about] how persistent inflation is over the next couple of years and whether interest rates need to stay high."

Peek made the point the effects of higher interest rates could be felt sooner in New Zealand than in the United States, where people tend to fix their mortgages at longer terms.

He believed there was a chance the toll high interest rates would take on the economy would prompt the Reserve Bank to eventually loosen monetary policy faster than its counterparts.

Peek recognised all the belt-tightening households need to do will hamper spending on eating out, discretionary retail items, and big-ticket items like new appliances and cars.

Hence, he saw companies like My Food Bag, which proved popular during the height of the pandemic, taking a hit.

He noted Briscoes and The Warehouse were holding up okay, but believed they'd need to provide discounts to maintain sales volumes.

As for property-related companies, Peek recognised the "more cyclical players at the pointy end of things" were doing it tough, but said retirement village companies like Ryman and Summerset had decent outlooks.

His rationale was that someone's decision to move into a retirement village might depend more on their health or phase of life than the property market.

Peek identified opportunities in companies that are part of big structural trends likely to outlive the current downturn. He saw value in the cyber security sector. He also noted how CDC Data Centres' foray into New Zealand was more successful than expected.

Meanwhile, small businesses in New Zealand and Australia are still keen on the efficiencies Xero's cloud accounting products facilitate.

• Continuous Disclosure is available on iHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every second Wednesday and it is brought to you with support from Fisher Funds.

You can find more New Zealand Herald podcasts at nzherald.co.nz/podcasts or on iHeartRadio.