For an investor’s portfolio, this means the return that you may have been able to earn on term deposits will likely drop. If term deposits are relied upon for your income, consider how you may need to replace the fall in income.
At present, there are still some reasonable bond interest rates on offer to help smooth your income exposure over time. While riskier, there are quality businesses generating attractive dividend yields. After a tough year economically, things are expected to improve on the back of lower interest rates and most New Zealand corporates have relatively good balance sheets.
A robust US economy, falling interest rates, and continuing growth in US corporate profits combine to support global equities and these remain appealing. The Trump administration continues to drive investor interest. Diversification, however, remains essential as political uncertainties remain.
2. The AI revolution will drive innovation
Artificial intelligence has been the defining theme of 2024, with tech giants investing over $218 billion in AI advancements this year. As tools like ChatGPT and Nvidia-powered systems become mainstream, 2025 is poised to deliver significant AI-driven revenues, efficiency gains, and innovative products.
Investment opportunities exist beyond those big names. Infrastructure companies (computer chips, data centres, etc) and application (service provision) layers are an integral piece of the puzzle. We expect to see a range of new service offerings and the ability to make existing services more efficient like with Microsoft Copilot. Expect to see businesses across various sectors integrate AI to improve efficiency and unlock new revenue streams.
3. Electricity demand aligned with the growth in AI
The digitisation of the economy, replacing ageing infrastructure and improving environmental impacts should continue to support the future of New Zealand’s energy sector. AI requires immense power, thus requiring a consistent electricity supply profile to meet demand. Don’t just think of power generators, there is a whole value chain to meet expected growth, including copper producers, gas suppliers, control systems, batteries and grid software systems.
4. Geo-political tensions and policy risk
The US market has lifted expectations related to Trump’s presidency. His proposed tariffs, how much these threats can be negotiated away, alongside the impact of some of his other proposed policies could all play a part in whether things calm down or not.
The obvious other concerns remain the Middle East and Ukraine, but from a global market perspective these concerns are probably at least partly incorporated into financial markets already. Relationships between the US and China and how these could play out are more of a wild card. This doesn’t have to be a negative, a more globally engaged China and easing of tensions could prove positive for market conditions. Markets will focus on any implications for inflation and interest rates from potential trade changes or barriers, potentially government borrowing levels and liquidity flows and perhaps the value of the US dollar.
5. A Christmas present
As 2024 comes to an end, markets have enjoyed a recovery in the run-up to Christmas. The US market, in particular, has performed well propped up by steady economic growth, reduced inflation and a lack of recession risks. Current financial market momentum seems likely to continue, which should provide investors with a little extra in their Christmas portfolio.
This may provide investors with some peace of mind, but take this time to revisit your investment objectives, position sizing and exposures. Resist the urge to spend recent gains, long-term success relies on patience and the compounding power of consistent investing.
Jarden Wealth Limited is an NZX Advisory firm. A financial advice disclosure statement is available free of charge at jarden.co.nz/our-services/wealth-management/financial-advice-provider-disclosure-statement/.
Full disclaimer available at https://www.jarden.co.nz/disclaimers/wealth-management.
