Another highly eventful year is drawing to a close. For my final regular column of 2021, I thought I'd look back at some of the best trades of the past 12 months and ponder whether they'll work again in 2022.
Fixing the mortgage back in June
The biggest story of the year has been inflation and interest rates.
Annual inflation has surged to 4.9 per cent, the highest since 2008, and the economy has rebounded strongly against the backdrop of a tight labour market and buoyant commodity prices.
That saw the Reserve Bank wrap up its QE programme in July and increase the Official Cash Rate for the first time since 2014.
Mortgage rates have risen sharply since the record lows of June, and those who locked in a two or three-year rate back then will be smiling.
Monetary policy operates with a lag, and with a large proportion of mortgages due to reprice within a year, some home owners are in for a shock, especially those who are heavily indebted.
Favouring shares over bonds
With interest rates starting the year at rock bottom, there was only one way they were likely to go. This created a difficult environment for conservative assets like fixed income and bonds, where prices move inversely to yields.
The NZX corporate bond index has fallen 4.3 per cent in 2021, hardly a disaster but still the only down year of the past two decades. It's been a similar story in the US, with treasury bonds falling 2.4 per cent for the first negative year since 2013.
These headwinds will remain in 2022, although we're a bit luckier here in New Zealand. Our Reserve Bank has led the charge on withdrawing stimulus and pushing interest rates up, while others are still playing catch-up.
That could mean a lot of the moves we'll see next year are already in the price today.
Choosing international shares over local ones
World shares are up almost 18 per cent so far this year. The US is one of the strongest with a 27 per cent gain, while Europe isn't far behind on 23 per cent.
The local NZX 50, on the other hand, has fallen slightly, putting it on track for its first negative performance since 2011.
We've outpaced international peers in seven out of the past 10 years, so I think we should cut ourselves some slack.
I'm still optimistic when it comes to the New Zealand economy, and our sharemarket. In fact, the contrarian investor in me finds it comforting that many other markets have powered ahead, and we've done absolutely nothing.
Backing the housing juggernaut
After proving just about every economist wrong in 2020, the housing market pushed relentlessly higher again in 2021.
The REINZ house price index has increased 25.3 per cent, well ahead of the Reserve Bank's forecast for a gain of 2.1 per cent.
The 30-year average is 6.2 per cent, so we all agree the current pace of growth is unsustainable.
However, you'd be brave to bet against the housing juggernaut in 2022, and real estate does tend to hold up well when inflation is high.
That said, mortgage rates have risen sharply and there's more to come, so I'd be counting on a much more modest increase over the coming 12 months.
Buying the Bitcoin dip
The OG cryptocurrency had a rollicking start to the year, promptly doubling in value to hit a new record of more than US$63,000 in April.
However, by July it had collapsed 50 per cent to under US$30,000. Those who kept the faith or jumped in at that point did well, as it rallied back to a higher high of almost US$68,000 by November.
I think cryptocurrencies are here to stay, and that there's every chance they become a part of the financial furniture in the future. At the same time, I've got no idea where the price of Bitcoin or any of the other cryptos is going in 2022.
It seems the only guarantee is that it'll be a volatile ride. Right now, Bitcoin has slumped about 30 per cent in the space of the past month, so buyer beware.
Mark Lister is Head of Private Wealth Research 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.