Harbour Navigator: After the tech reset
Technology and biotech companies are delivering on revenue
After a period when share valuations adjusted to higher interest rates, share prices of fast growing companies are performing following positive announcements on growth
These sectors may be less exposed to a slowdown in household spending and investors may become more comfortable with increasing exposure
As has been well documented, the share prices of long-dated ass...
Harbour Outlook: A volatile month for bond markets, equities follow
Key points
The MSCI All Country World Index returned -5.7% over the month in New Zealand dollar-unhedged terms, and -1.8% over the quarter. Returns for the month were slightly less worse in New Zealand dollar-hedged terms, down -4.7% for December. However, the dollar-hedged returns were up strongly (+7.0%) over the quarter.
The New Zealand equity market (S&P/NZX 50 Gross with imputation) held up well relative to other develop...
Top 10 risks and opportunities for 2023
Investment markets generally have many different factors that drive returns, however occasionally there are very few. 2022 will go down as the latter. Inflation was the dominant theme for 2022, creating an unenviable backdrop for bond markets as central banks raised rates to try and combat rising inflation. Equity market valuations fell sharply adjusting to higher discount rates.
While we pointed out the risk of inflation b...
Harbour Navigator: Despite significant falls, NZ houses are expensive relative to incomes
Despite a 12% decline from last year’s peak, we think New Zealand houses are still significantly overvalued based on historically high price-to-income ratios and mortgage repayment costs.
The currently tight labour market is usually a positive influence on house prices but is currently being overwhelmed by very low rates of population growth, high mortgage rates and ongoing increases in housing supply. We expect this dynamic ...
Harbour Outlook: Have we hit peak hikes? Earnings risk to come?
Key points
The MSCI All Country World Index returned 0.8% over the month in New Zealand dollar-unhedged terms, and 6.0% in New Zealand dollar-hedged terms.
The New Zealand equity market (S&P/NZX 50 Gross with imputation) finished the month up 1.9%, whilst the Australian equity market (S&P ASX 200) rose 6.6% in Australian dollar terms in the month, and 4.4% in New Zealand dollar terms.
Generally, bond yields fell over the mon...
The RBNZ seeks to “cool the jets”
NZ interest rates pushed higher this week after the RBNZ revealed it now expects to take the OCR to 5.5% given its greater concern about high inflation and a tight labour market.
While this action may bring inflation back towards its 1-3% target band more quickly, it may also push the economy into a deep recession next year.
As the economic damage from higher interest rates becomes more evident, we expect the RBNZ to bec...
Harbour Navigator: Another reason the RBNZ should slow hikes
New Zealand bank funding costs are likely to rise over the next 1-2 years as the Reserve Bank of New Zealand (RBNZ) unwinds its liquidity provision measures introduced in response to COVID-19.
As financial system cash reduces, banks will look to attract alternative sources of funding. Therefore, retail interest rates will likely be pressured higher, independent of any changes in the OCR.
We think this ought to encourage a more...
Harbour Navigator: Local or global share markets - where to invest?
In New Zealand, most of our wealth is invested locally in the property market, share market and in New Zealand dollars. There are many factors that have driven this, ranging from wanting to invest in companies we know and trust, a preference for “real” bricks and mortar assets through to ease of access. Though one could make a case today that the latter may no longer ring true with both direct global shares and global share fu...
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Harbour Outlook: Share markets bounce on better earnings
The MSCI All Country World Index returned 3.2% over the month in New Zealand dollar-unhedged terms, and 6.0% in New Zealand dollar-hedged terms.
The New Zealand equity market (S&P/NZX 50 Gross with imputation) finished the month up 2.5%, whilst the Australian equity market (S&P ASX 200) rose 6.0% in Australian dollar terms in the month, and 2.7% in New Zealand dollar terms.
Generally, bond yields rose over the month with globa...
Banks can survive mortgage servitude, but business exposure provide tail risk
Unemployment, not house prices, is the most important determinant of bank asset quality; a key factor for bank profitability and creditworthiness.
For now, housing mortgage arrears are very low, and the banking system appears structurally well prepared for a typical household loan-loss cycle.
Benign outcomes on bank loan-losses could be challenged if the consensus view that we are facing an almost exclusively household loss cy...
