New Zealand's stock market isn't expected to repeat the stonking return of 2019, but low interest rates and a benign economic environment should be enough to keep things ticking over this year.
The S&P/NZX50 Index notched up a 30.4 per cent gain in 2019, its biggest since the measure was launched in 2003, due largely to central banks cutting interest rates and some mulling the introduction of more unorthodox responses to maintain growth.
Limited returns in fixed interest securities encouraged investors to take on equity risk and the likes of New Zealand's market – where there's a strong cohort of utilities and property investors paying reliable dividends – were alluring to international and local investors alike.
Local economists are leaning towards another rate cut in 2020, but investors don't see that lighting a fire under the NZX50, which had just 11 members in negative territory last year. Two notched up single-digit gains and the other 37 gave investors a double-digit return.
Shane Solly, a portfolio manager at Harbour Asset Management, said the lower interest rates were the key catalyst for equity markets with the wider macro-economic environment top of mind for investors.
"I wouldn't be surprised to see things cool down a little bit. The outlook for 2020 is still an environment broadly conducive to capital markets," he said.
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Solly expects investors to focus more closely on the fundamentals for companies and their earnings, which should lead to a broader range of outcomes among firms.
Cheap money will continue to make good quality listed companies attractive takeover targets. Metlifecare is the latest firm in the spotlight after its board and major shareholders backed a $1.5 billion offer from Swedish buy-out firm EQT. It will likely follow Abano Healthcare out the door if shareholders agree that their money can be put to better use elsewhere.
However, merger and acquisition activity isn't all one-way traffic with listed company balance sheets strong enough to go hunting for acquisitions. Infratil bought half of Vodafone in 2019, NZME is still trying to buy rival Stuff, and Chorus has said it's open to buying mobile network assets if they came up.
New listings have been more problematic for the stock market operator in recent years, although it's not alone in facing that problem, with the number of initial public offerings globally down a fifth in 2019.
NZX has remained steadfastly optimistic about the pipeline and chief executive Mark Peterson has urged patience for the global conditions to become more favourable for IPOs.
While local companies often remain wary about going public, demand among investors is strong. Hawke's Bay Regional Council's partial privatisation of Napier Port was well overbid, and those investors were well-rewarded with the shares closing out 2019 at $4.16, well up on the $2.60 sale price.
Even speculative medicinal cannabis firm Cannasouth ended the year in the black at 60 cents, above its 50 cent sale price and recovering from an inauspicious start in June.
In theory, there should be plenty of candidates for new listings. Private equity firms have been holding on to companies longer than normal with the likes of Hirepool and Burger King NZ among those looking long in the tooth for owners Next Capital and Blackstone respectively.
Chris Timms, an investment adviser at Craigs Investment Partners, said successful listings such as Napier Port were needed to encourage more IPO activity and while private equity firms held a pipeline of opportunities, people were "pretty cautious that they're not priced to absolute perfection."
"How do you price those so investors can feel comfortable taking them up?"
Meanwhile, new and younger investors have been introduced to the local market with strong uptake of micro-investment platform Sharesies and the introduction of two new rivals.
And a new licensing regime requiring investment advisers to put their clients' interests first and ditching clunky and confusing designations may empower advisers to dial back what's seen as an overly cautious approach.
If that pans out, it could see a recovery in investor appetite for some of the market's smaller stocks that have struggled to attract liquidity without coverage from the major research houses.
Harking back to the focus on fundamentals, a tailwind has emerged supporting some of the smaller stocks as the likes of Blis Technologies and Wellington Drive Technologies finally reached profitability. They both listed in 2001 and have spent almost 20 years as penny dreadfuls.
And with the growing importance of KiwiSaver funds – they now have about $6.7b invested in the local share market – the investment community will keep a close watch on the government's decision on whether it will change the mandates of the default funds and their $9.5b of funds under management.
Even without the risks that will undoubtedly arise from elections in the US and at home there will be plenty going on in capital markets this year.