Mark Lister: A lucrative year for investors

The NZX 50 putt on 22.0 per cent for the strongest performance in five years.

Another year has come and gone, and for investors it was a very lucrative one. Despite numerous risks that could've derailed things, markets focused on the positives during 2017.

US shares had their best year since 2013 with the S&P 500 posting an annual gain of 22.5 per cent (including dividends). The market was up every month of the year, something which has never happened before.

The local NZX 50 wasn't far behind, putting on 22.0 per cent for the strongest performance in five years. However, it's worth remembering that NZ shares experienced a 13 per cent correction in late 2016, so part of the 2017 gain is likely a rebound from that.

It was an upbeat story elsewhere too, with UK shares hitting record highs and Australia returning a commendable 11.9 per cent. Emerging markets were one of the strongest regions, registering a 34 per cent increase.

On a trade-weighted basis, the NZ dollar fell 4.2 per cent during 2017, although whether that's good news for exporters depends on where they're selling to.

The currency fell 5.6 per cent against that of our largest trading partner, Australia, and it was down similarly against the British pound. The biggest decline came against a resurgent euro, with the kiwi falling more than 10 per cent.

However, the NZ dollar was up 2.4 per cent against the US dollar in 2017. Despite the Federal Reserve hiking interest rates three times during the year (while our own Reserve Bank sat on its hands) the greenback has remained out of favour for many.

The slowdown in the housing market was another big story in 2017, with Auckland grinding to a standstill and the annual gain for the rest of the country moderating to mid-single digits.

Oil prices ended the year 6.2 per cent higher at just above US$60, while gold quietly enjoyed its best year since 2010, rising 13.5 per cent to finish a little over US$1300.

Global dairy prices fell 13.1 per cent during 2017, although the Fonterra payout remains comfortably above $6.00 and drought conditions are a bigger concern than price dips.

The stars of the NZX were a2 Milk and Synlait, which rose 279 and 132 per cent. Some of our tech companies were also very strong, with PushPay, Gentrack and Xero all posting 80 per cent plus gains. Fisher & Paykel Healthcare delivered similarly for its shareholders, with a 72 per cent annual increase.

Three others that impressed me were Tourism Holdings, Restaurant Brands and Scales. They all delivered returns of 50-75 per cent on the back of sensible management and astute strategic decisions. Tourism Holdings benefitted from the booming tourism sector, although they deserve full credit for taking maximum advantage of that tailwind.

That's in stark contrast to two of the worst NZX 50 performers – Fletcher Building and Metro Performance Glass. A prosperous domestic backdrop somehow passed them by and both grossly underperformed the broader market, falling 23 and 44 per cent respectively.

Sky TV was the only other company in the main index to suffer significantly, although its 31 per cent fall is partly related to industry changes largely outside its control.

As for the coming 12 months, what will the tax working group come up with, and will the housing market behave itself? Will the economy slow like we're all predicting, or does New Zealand have a stronger foundation than we realise? Will the collapse in business confidence prove to be an overreaction, or a precursor to something more sinister?

That's just the tip of the iceberg, so there'll be plenty of issues to explore in 2018.

- Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. This column is general in nature and should not be regarded as specific investment advice.