Positive returns in recent months could be a sign that things are on the up for Kiwi investors. Photo / NZME
With less than a month to go New Zealand’s sharemarket is likely to still end the year in negative territory for 2022 but positive returns in recent months could be a sign that things are on the up.
The benchmark NZX50 rose over 2 per cent last month, tilting the last six months into positive territory. While US stocks rose for two months in a row in October and November - the first back-to-back monthly gains since 2021.
So is this a sign of the markets bottoming out?
Mark Lister, investment director at Craigs Investment Partners, said that was the million-dollar question.
“There’s definitely some positive signs out there. In the US we have seen inflation which looked to have peaked in June at 9.1 per cent. It’s come right back to 7.7 per cent which is still super high but moving in the right direction.”
Lister said lots of the indicators it watched like supply chain pressure were coming off the boil, and oil had in recent days fallen to its lowest levels since last year.
“We are starting to see economic activity slow which tells us the interest rate hikes we have seen around the world are starting to work.”
Lister said putting all of that together it seemed markets had become more optimistic that there was light at the end of the tunnel. US markets have been buoyed in recent days by Federal Reserve Governor Jerome Powell confirming the next interest hike will be a smaller one.
“Markets were looking for that downshift in the pace of rate hikes which tells us that at some point interest rates will peak.”
In New Zealand, the jury is out yet whether our inflation has hit its peak. “Most of the banks believe it has peaked. I am probably in that same camp. Although the Reserve Bank forecasts suggests it could push a little bit higher.”
The rise in the Kiwi dollar from US55c to US63c was helping because it means we aren’t paying as much to import goods, Lister said.
“That puts a lid on our inflation because it means all those imported products are cheaper.”
Lister believes it is too early to say if sharemarkets have bottomed out.
“It is definitely comforting to see a bit of stability and a bit of optimism and I think there is good reason. However, what I think is still a missing piece of the puzzle is just how much will this year’s interest rate hikes dent economic activity in 2023.
“We haven’t had enough time for them to filter through to the real economy. There is still a whole lot of people that haven’t come off those low mortgage rates and moved on to the higher ones. So there is definitely still an economic hit that the economy has to take next year and we don’t know how big that will be.”
Lister said that made him question whether the current optimism across markets would be sustained.
“If the economy just takes a small dent next year then probably the worst is passed and we are heading for a more stable period. But if the economic hit next year is bigger and pushes us into recessionary territory we would still see another leg down for sharemarkets.”
He said in almost every US recession the sharemarket didn’t bottom until the recession was upon the country. “If there is to be a US recession next year, as some people believe, then it is highly likely we haven’t seen the bottom yet, based on history.”
Year to date the NZX50 is down just under 12 per cent but for the last six months it’s up around 1.8 per cent.
Matt Leibowitz, chief executive of Australian trading platform Stake, reckons crypto investors are fleeing the currencies in favour of the relative safety of the equity market.
Leibowitz who was in New Zealand last week on a flying visit to tend to its Kiwi arm, said investors’ risk appetite has shifted.
“When we speak to customers it’s a lot about I want to get out of the crypto space that I was investing in. They see equities as a safer bet.”
The collapse of crypto trading platform FTX has caught up 30,000 Australians and some New Zealanders are also expected to have lost money through its collapse.
FTX has also had a contagion effect, with others caught in it too.
This week cryptocurrency lender BlockFi filed for bankruptcy and filed a lawsuit against FTX founder Sam Bankman-Fried to seize shares in Robinhood that Bankman-Fried allegedly pledged as collateral days before FTX collapsed.
Leibowitz said investors could still get exposure to cryptocurrency via share investing through the likes of Robinhood or Coinbase without direct exposure to the currencies which have fallen sharply this year.
He is hoping regulation will be bought in quickly for crypto markets.
“I think what you saw in 2000 with the dot.com collapse, 2008 with the GFC you saw a really good response from regulators and companies and the best companies survived. I think there is a real opportunity for traditional finance to understand what is happening and use the technology. Learning the lessons on what has gone wrong and what can we do better.”
Stake isn’t involved in cryptocurrency trading but Leibowitz hinted it could look to in the future if the sector was regulated.
“We want to be very close to it and understand what is happening. We are customer-led - our customers want to understand it - they are more crypto curious than crypto native - existing investors want some exposure but it’s not a large part of their portfolio.
“We want to understand it and how it will interact in the future but we would much rather it be regulated. That tells us what the guardrails are. We have got to be attuned to what is happening otherwise we will miss out on what could be a really interesting period in a few years’ time.”
Meanwhile, Kiwi trading platform Sharesies noted in its research this week that interest in investing in crypto has waned substantially in the last year falling from around 13 per cent to 7 per cent of those it surveyed.
Sharesies co-CEO Leighton Roberts told the Herald there was no hard evidence so far to show people were selling their crypto and investing in shares instead.
Vector has less than a month to announce the outcome of the strategic review of its smart metering business.
Australian media speculated this week that the process had been suspended but Vector said that was not the case.
“Vector is aware of unsubstantiated commentary in The Australian about the Vector Metering strategic review process. The process has not been suspended as the article speculates.”
The company pointed back to its August update instead which states that it expects to announce the outcome of the strategic review by the end of the calendar year.
The year is fast running out but deals are still being done.
This week Australian electronics retailer Jaycar bought Kiwi fishing and boating goods company Burnsco.
At the time the review was first announced, Forsyth Barr analysts Andrew Harvey-Green and Mark Robertson said while Vector’s smart metering business has a sum-of-parts value of $3.1 billion, the recent Intellihub deal implies a market value of around $4.2b - a significant sum.
HSBC Holdings Plc is reviewing its New Zealand retail banking operations as the lender looks for ways to streamline its footprint while heading off calls for a full-blown breakup.
The London-based bank is studying strategic options for the business, a spokesperson for HSBC confirmed in response to Bloomberg queries.
“Like many organizations, HSBC regularly engages in business reviews to optimize our network operations for the long term,” the spokesperson said in a statement. “HSBC’s wholesale business and other operations in New Zealand are not impacted by this review.”
New Zealand generated a pretax operating profit of NZ$50.9m last year, according to accounts filed by HSBC’s local subsidiary. Of this, NZ$7.5m came from the lender’s New Zealand wealth and personal banking operations.
HSBC became the first overseas lender to gain a New Zealand banking license in 1987 following the deregulation of the country’s financial industry. The bank operates a handful of branches in the country and provides a full range of commercial and investment banking services in addition to its retail business.
The review comes as the bank is pruning back its global footprint and focusing on building up its position in Asia, particularly in wealth management. This week, the lender announced the sale of its Canadian unit to Royal Bank of Canada for US$10 billion.
That transaction follows HSBC’s disposal of its French and US retail operations last year. It agreed to sell its Russian unit in July and said in November it will merge its Omani unit with a local lender.
HSBC has been trying to fight off calls from shareholder Ping An Insurance Group Co., which has argued for a breakup of the bank. HSBC has said that there is little merit in spinning out its Asian operations. - Bloomberg