Mark Lister: Straight to full speed in 2015

Currencies have been volatile, with the kiwi down 5.5 per cent against the US dollar so far in 2015. Photo / File

Opinion

The year has started in a much more eventful fashion than many investors will have seen for some time. There have been a number of key developments that will set the tone for 2015.

Oil prices have fallen another 6.4 per cent (although at one point were down 17.9 per cent) while dairy prices have staged a rebound with whole milk powder 27.6 per cent above December lows.

In Europe, the European Central Bank has picked up where the US Federal Reserve left off and embarked on a QE money-printing programme, and Greece has a new Government that isn't a big fan of austerity.

Closer to home, inflation has moved into negative territory (on a quarterly basis) for the first time since 2012 and the Reserve Bank appears to have given up on the idea of raising interest rates until late 2016 at the earliest.

The Reserve Bank of Australia went a step further, cutting the cash rate by 0.25 per cent and signalling clearly to markets there's probably one more rate cut to come.

Understandably, all of that saw some significant moves in financial markets during January. European shares had their best month of returns since 2011 with a 6.9 per cent return, while US equities declined for the second month in a row.

The 3.1 per cent decline in the S&P500 was well below the average January return since 1950 of 1 per cent.

According to sharemarket lore, this doesn't bode well for the rest of 2015, as the market direction over a calendar year has tracked January 77 per cent of the time since 1950. But last year proved this trend wrong, the S&P500 falling 3.6 per cent in January before going on to post an 11.7 per cent annual gain.

New Zealand shares are up 3.9 per cent year to date, while the ASX200 has rebounded strongly and is up 6.8 per cent.

Currencies have been volatile, with the kiwi down 5.5 per cent against the US dollar so far in 2015. The currency has also declined against the Australian dollar (-0.5 per cent) and the British pound (-3 per cent).

Interest rates also seen some moves in recent weeks, largely on the back of falling inflation expectations.

For investors, many of the strategies that worked last year could well succeed again this year. Anything exposed to the US economy is likely to perform well, and might get an added currency tailwind as the US dollar continues to rise.

Australia will remain a challenge as commodity prices continue to languish, but with a rapidly falling currency and lower interest rates, there will be some winners.

Retirees holding out for interest rate rises face more disappointment as rates go sideways at best. Then again, with annual inflation running at just 0.8 per cent, the "real" return on a 4.2 per cent term deposit is 3.4 per cent. That's the best inflation-adjusted interest rate since 2008.

When it comes to shares, the best-performing sectors last year were those that paid high, reliable dividends like listed property and utilities. Throw in a few companies that will benefit from a weaker currency and some reliable infrastructure holdings, and your strategy is probably about as right as it can be.

Having said that, count on more ups, more downs and more surprises.

Markets are trading at high levels and it's not a bad time to do some spring cleaning.

US shares have tripled since 2009 and NZ shares are up 140 per cent over that period.

Use these strong prices to take profits on positions that don't fit with longer-term objectives.

Mark Lister is head of private wealth research at Craigs Investment Partners. His disclosure statement is available free of charge under his profile on www.craigsip.com. This column is general in nature and should not be regarded as specific investment advice.