Graphic / NZME
In 2021, Covid touched everything – from the availability of construction materials to the price of asparagus. But even this year, the virus wasn't the only game in town. Here are some of the big businesss stories that weren't just about Covid.
You will know this if you're saving up to buy a big block of cheese, planning a reno or refilling the car - inflation has returned, in a big way.
In October, even the gloomiest forecasters were caught out by news that the Consumer Price Index shot up 2.2 per cent in the September quarter. That was the biggest quarterly rise since 1987, ignoring self-inflicted inflation spikes caused by GST changes.
The latest numbers took the annual inflation rate to 4.9 per cent, and it wasn't as though the price rises affected just a few products: there were increases in 10 of the 11 main categories used when calculating the index. The cost of a new house, for example, was up 12 per cent for the year, while petrol leapt by 21.5 per cent.
Which all leaves 2022 with a very big question to answer: are rising prices just a temporary Covid side-effect, and likely to come right once factories crank up production, shippers find a few more containers and migrant workers return? Or was that October number the old inflation monster waking up from hibernation and getting ready to do some serious damage? Which brings us to a closely related issue ...
For economics geeks, October 6, 2021, could one day be remembered as the great turning point. That was when the Reserve Bank reversed the long decline in interest rates and lifted its official cash rate by 0.25 percentage points, to 0.5 per cent. In November it did it again, with another 0.25 percentage point rise, and a warning of at least seven more to come, making the official cash rate about 2.5 per cent by mid-2023.
While still modest compared to pre-GFC days, the potential pace of the tightening after such a long period of low interest rates is testing the financial markets.
The October increase was the first since July 2014, when the rate went up to 3.5 per cent. In the seven years following, the Reserve Bank had delivered a steady stream of "no change" announcements and cuts, as interest rates internationally were driven down by a fear of deflation – a word that hasn't been heard much lately. The fall in interest rates was supercharged in 2020 when Covid's arrival prompted central banks to open up a firehose of cheap funding to keep economies afloat.
Now, rising interest rates bring some big questions for 2022. How far will the Reserve Bank really go? Has it misjudged the economy's ability to rebound from Covid and raised rates too soon, threatening to choke off any recovery? Or has it arrived at the inflation fight too late and without enough weaponry, raising the risk that it will have to impose rate increases big enough to do some serious economic damage?
And, however high rates do eventually go, how will the increases hit a cohort of homeowners, and would-be homeowners, who have never known anything but cheap money?
For many local sharemarket investors, the big question at the start of the year was the one facing milk marketer a2 Milk, not that long ago viewed as one of the brightest prospects on the NZX.
Having soared to more than $21.51, a2 Milk shares began 2021 worth about half as much, and resolutely heading in the wrong direction.
So as the New Year dawned, that big question was: could the company that Bloomberg number-crunchers once called the "share of the decade" find its groove again?
Spoiler alert: no, or not yet. Four earnings downgrades in 2020 and this year didn't help. Nor did Covid-19, which disrupted the company's unconventional sales channels into the key Chinese market. But a2 Milk also has a few non-Covid problems, including rising competition, and Chinese couples' reluctance to produce enough babies to drink what a2 sells. Capping it off, there have been reports of two class-action lawsuits against the company.
With the share price at $5.80 or so when last sighted, a2 Milk's market value is not much more than a quarter of the $16b it once boasted. November's annual meeting made it clear that future growth is likely to be more modest than investors once enjoyed, and analysts remain unconvinced that a2 Milk can ever find its old recipe again.
In July, the Commerce Commission dropped a paper bomb on the $22-billion-a-year supermarket industry, in a preliminary report that found "competition is not working well for consumers in the retail grocery sector".
That was putting it mildly, given that the commission found the big two, Woolworths and Foodstuffs, are a duopoly, their profits and prices are high by international standards, they've been known to block competition – for example, by tying up access to potential supermarket sites -- and the way they treat suppliers needs some work.
Helpfully, the commission suggested some possible remedies – everything from a code of conduct for suppliers, or clearer pricing of specials, right up to more nuclear options: making the big chains supply competitors at wholesale prices; breaking the existing groups into separate retail and wholesale operations; or even state backing for a new rival - GovtShop anyone?
It was, said some observers, the industry's "Telecom moment", recalling the time when an earlier Labour Government decided another giant had become too big for the consumer's good.
The commission's final report, once due in November, has now been delayed until March. If the commission sticks with some of its more radical suggestions, then stand by for some difficult questions - not just for the industry, but for the Government as well.
A chilly night in August, power cuts that left 34,000 North Island customers in the dark, and suddenly the electricity market was back in the spotlight.
Many fingers were pointed, in many directions: alleged culprits included grid operator Transpower; generator/retailer Genesis; not enough wind; water weed; the Government's ban on most oil and gas exploration; and the very structure of the wholesale power market.
Energy and Resources Minister Megan Woods wondered out loud whether the big generators had cut output to maximise profits, and declared the incident "prompted further questions on whether the system is fit for purpose". After which, in September, the Electricity Authority concluded that the problems highlighted shortcomings at Transpower.
Meanwhile, the authority's review into competition in the wholesale electricity market rumbles on.
While the outcome remains to be seen, Woods has been reported as not ruling out "structural change" to the industry.
And the authority hasn't been shy about voicing its disquiet over some aspects of the power market. In October, it estimated that the average household's power bill is about $200 more than it should be, because Meridian, supported by Contact, provides subsidised electricity to the Tiwai Point aluminium smelter.
The review's ultimate findings – and the Government's reaction – is a story for another day. In the meantime, the possibility of regulatory change continues to weigh on the industry, and on the listed power companies which are a cornerstone of many investment portfolios.
One question that cropped up repeatedly in 2021 was an old perennial: are Kiwis too prone to creating great companies, building them up – then flogging them off overseas?
Whether such sales are shortsighted, or just a sensible way of recycling capital into more clever new ventures, has been debated endlessly. What is clear is that the year brought plenty of deals to reignite that debate, many of them companies operating in the high-tech "new economy". Among the sales:
• Crossware, an Auckland maker of software for customising email signatures, sold to a German company for an undisclosed price.
• Top video game developer A44 of Wellington, sold to the UK, price undisclosed.
• Robotics specialist Rocos, off to become part of a US company.
• The sale of EzyVet, a maker of software for veterinary practices and hospitals, for a price believed to be well over $100m.
• Retail software company Vend – one of the higher-profile tech success stories of the recent past – heading to a US buyer for $450m.
• Dunedin appointment software firm Timely, also off to the US.
• One of the lower-profile giants of the local tech scene, underground mapping company Seequent, fetching $1.45b from a US buyer.
• Another gaming outfit, Ninja Kiwi, sold for $203m to a Swedish buyer.
• Education Perfect, selling a majority stake to US giant KKR in a deal that values the firm at $435m-plus.
• And undersea cable company Hawaiki Cable, sold to Singapore for a price presumed to be in the hundreds of millions.
And that's before we get to the King Kong of deals, the sale of Weta Digital's intellectual property to US company Unity Software for a monster-sized $2.3b, in a deal that leaves Weta – now to become WetaFX– largely intact.
Ah, the excitement of the sharemarket, the thrilling rises and the gut-wrenching falls. Sorry, but not in New Zealand in 2021 – a year when irrational exuberance was not one of the local market's problems.
There could still be a surprise, but as of December 23, the S&P/NZX 50 Index was 3.75 per cent lower than where it ended 2020.
And it's not as though the gloom was imported. By the same date, Australia's S&P/ASX 200 Index was up by 10 per cent compared with the start of the year. In the US, the Dow has climbed by 18 per cent over the same period and the Nasdaq by even more – up 22 per cent. Globally, the MSCI World Index is up by 38 per cent.
New Zealand's poor showing was despite the fact that the volume of trading has been solid, and failed to reflect reasonable results from most listed companies in the August reporting season. The tepid performance has been blamed on a variety of factors, including the yield-heavy nature of the NZ market, making it vulnerable to rising interest rates, and the a2 Milk effect, as the former superstar's decline weighs on the wider market.
The power companies have also been a focus, held back by potentially stiffer regulation and, again, by the rising trend in interest rates.
The market's performance also goes against the reported surge of interest from younger investors using new, easily accessible trading platforms like Sharesies and Hatch. That suggests many of this new generation of investors are more interested in taking a punt on overseas markets, and hot new stocks like Rocket Lab or Allbirds, than the established names listed on the NZX.
If there's one company that makes headline-writers reach for the nearest cliché, it's Rocket Lab. If it's not counting down to something, it's forever lifting off, going into orbit, or heading for the final frontier.
For once, the clichés are justified. After all, how many companies have gone from zero to $8 billion in just over 15 years?
This was the year when Rocket Lab really did – sorry – lift off. After some delays, the company listed on the US Nasdaq sharemarket on August 25.
It took a while to reach escape velocity: Rocket Lab's new shares, issued at US$10 apiece, began trading at US$11.50 and have been as low as US$9.50. But lately, the shares have been nearer US$12-US$13, rewarding investors with a solid capital gain and giving Rocket Lab a market capitalisation of about US$5.5b, or $8b. Which isn't bad for a business that started as a two-man band in 2006.
Profit remains for the future but, as is the way with high-tech companies, it's all about the pipeline. Rocket Lab is working on bigger rockets, capable of carrying crew, is developing a US launch site, and has been diversifying its business.
And so far, listing has been good news for the several thousand New Zealand investors who put their money into the business when it listed, and for existing shareholders, founder Peter Beck and company staff – many of whom became overnight paper millionaires.
Whether Rocket Lab counts as a "Kiwi" company is a moot point: it's largely owned by Silicon Valley venture capitalists, and corporate HQ is in Los Angeles. Then again, many of its staff are in this country, it has manufacturing facilities in Auckland and continues to fire rockets into space from its Mahia Peninsula launch site.
If the housing market is a movie, we've reached the bit where the monster is taking bullet after bullet, staggering, but still refusing to die.
The market got a warning at the start of the year, when Finance Minister Grant Robertson declared it was time for "bold action" to fight soaring house prices.
Since then, a high-powered arsenal has been trained on house prices. In March, loan-to-value lending rules were re-imposed (and toughened-up in May and September). The same month, property investors were shocked by the Government's announcement that it would stop allowing them to claim interest on home loans as a business expense (new builds excepted). As well, the bright-line tax test was doubled from five to 10 years (new builds excepted again).
On top of that, the Reserve Bank has been given the power to impose debt-to-income limits on lending. And more recently, rising interest rates have begun to bite.
And through it all, the graph line of the Real Estate Institute's house price index has remained near-vertical. By November, the national index was up 27.2 per cent on November 2020 (though up by a mere 25.8 per cent in Auckland).
Having shrugged off everything that's been thrown at it so far, the threats to the housing market for 2022 include further increases in interest rates, tougher lending standards, the rising supply of new homes, and Covid-choked immigration - possibly even an exodus of Kiwis as the border opens up.
So what will 2022 bring? With coronavirus still in the mix, keep a close watch on the Herald's business section for clues.
NZ GDP falls 1% in September quarter; analysts expected 0.4% decline.