Is the New Zealand Share Market Dead?

By Hamish McPhail LL.B, GDipBus (Personal Financial Planning), CFP^CM
Financial Adviser – Investments

The country received welcome news recently that we have emerged from recession after the previous 18 months of negative GDP figures. While this positive information does not immediately assist the average Kiwi as we struggle with the cost of living, it does signal that there is hope on the horizon.
 
The reduction of our Official Cash Rate (OCR) by the Reserve Bank will continue. The OCR is sitting at 3.75% and forecasts are that if the battle against inflation proceeds well (as expected), this may lower to around 2.5% by 2027. As New Zealand emerges from recession, it is likely to see a rebound in job opportunities and economic growth. Typically, such recovery leads to a more favourable environment for wage growth, better job security, and the ability for individuals to save and invest again. A stronger economy also means improved public services, as higher tax revenues support healthcare, education, and infrastructure development, all of which directly benefit our quality of life.
 
The New Zealand share market’s performance over the past five years reflects the country’s economic ups and downs. During the height of the COVID-19 pandemic, the NZX 50 index, which tracks the performance of the top 50 companies in the country, saw significant volatility. After initially plunging in early 2020, the market recovered sharply as the economy adjusted to new circumstances, with strong performances from sectors like healthcare and technology. However, the market experienced another setback during 2022, as global inflationary pressures and interest rate hikes led to corrections in stock prices. In essence, including the positive effect of dividends, the NZX 50 sits at the same level it was 5 years ago!
 
So, reflection as to whether our domestic share market is dead is undoubtedly warranted. Our view is that to the contrary, investment into NZ infrastructure, NZ commercial property and NZ utility companies provides a great opportunity. For instance, one of our leading retirement village operators has a current share price trading at about 40% of the net asset value of its property holdings. Patience is an investment requirement, and we see a strong likelihood that investors will be rewarded with a strong uptick in return over the next 12 -24 months through the combination of muted values, a lowering OCR, and economic recovery inching upward.
 
As recently as 2015, the NZX 50 was the darling of world share market. Will we get back to these heady levels? The answer is unknown but for those who see opportunity in measured accretion of wealth, the green light is shining once more in New Zealand.