YO U R I N V E S T I N G
The What, the How, and the Why After watching shares slide sideways, are a Santa rally and a sugar rush around the corner for Kiwis? Greg Smith analyses the quarter in the markets and finds reasons to be cheerful.
Kiwi investors can look back on the September quarter with some fondness, after the NZX50 index rose 4.9 per cent. This compares favourably with many global indices which gained less than 0.5 per cent, including the S&P500 in the US, and the ASX200 across the Tasman. We saw this outperformance despite the arrival of the Delta variant in mid-August. Investors took the renewed ‘stay-at-home’ orders in their stride, thinking “we’ve been here before”, and expecting the economy to be resilient and bounce back strongly on the other side of the lockdowns. We’re more positive Positive economic data supported this feeling.
This positivity about the economy was seen across the corporate sector as companies started to report their annual earnings during August. Earnings growth was generally robust. Strong pent-up demand and digitally driven growth were among the main themes, along with supply chain challenges and price inflation. Even companies affected by border closures were optimistic about the light at the end of the tunnel, as vaccination rates started to climb. The winners One of the big winners from the pandemic, transport and logistics company Mainfreight, was the top performer, surging around 27 per cent for the quarter.
The Chinese economy was in the spotlight as property developer Evergrande teetered on the brink of failing. At the other end of the scale, there were rising inflationary pressures as the global economy rebounded. This thrust the spotlight on when the US Federal Reserve, and other central banks, would start to remove stimulus. After a Delta-induced delay, in October our own Reserve Bank of New Zealand raised the official cash rate (OCR) for the first time in seven years. It decided it was time to deliver its own ‘vaccine’ against inflationary pressures, which have been mounting.
Fuel supplier Z Energy wasn’t far behind, rising 25 per cent, following a takeover bid by Aussie fuel company Ampol.
This rise was confirmed by a ‘hot’ read on annual price inflation. The cost of goods and services went up 4.9 per cent in the September quarter, the biggest jump since 2011.
Ultra-low interest rates helped propel house prices further, making homeowners and many consumers feel wealthier.
Globally, mergers and acquisitions activity (M&A) was up through the quarter, continuing a trend we’ve been seeing in 2021.
Our central bank was one of the first in the world (beaten only by Norway) to raise rates and this, along with the prospect of ongoing rate hikes, lifted the Kiwi dollar.
Closed borders (including the trans-Tasman bubble) meant Kiwis boosted their savings through the quarter – and spending generally.
The local market did well, despite a number of potential offshore headwinds that could have upset the applecart.
But this also arguably contributed to our stock market trading in a ‘sideways’ fashion through the start of the final quarter.
The June quarter gross domestic product (GDP) showed the economy growing at a better than expected 2.8 per cent, while the unemployment rate dropped to 4 per cent.
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INFORMED INVESTOR
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SUMMER 2021
