Market Watch: 'There have been a few landmines' - 2021 a year in review

This year has been one of the most challenging investors have faced for a long time, says Pie Funds chief executive Mike Taylor.

"For investors in 2020, for example, if you just closed your eyes and bought things that on the first of April and just held it for the rest of the year, you would have made a lot of money.

"This year it's been different, you had to be a bit more selective in what you were picking and there were a lot of opportunities you can take advantage of as capital flows in and out of different sectors."

The travel sector was one of the most obvious, with airport, airline and cruise stocks rising and falling on pandemic news.

"So I wouldn't say it's been a super-easy year for investors, there have been a few landmines and I expect that probably 2022 will have a few of those as well."

Apart from the pandemic itself, a low point for the year had been the rising inflation, Taylor said.

Supply chain bottlenecks and shipping costs, in combination with increased demand for online goods, have pushed the annual inflation rate to 4.9 per cent for the year to September 30.

It was likely already up around 6 per cent and could possibly go higher in the new year before easing, Taylor said.

Eventually, supply chain issues would be resolved and there were already signs shipping costs were falling.

Some commodities prices - like logs - have already peaked and started to fall, he said.

But if inflation proves persistent then central banks face serious problems.

"[They] have been in a really difficult position because they've had to provide stimulus via low rates and quantitative easing to keep the long end of the interest rate curve down, but then they are also faced with inflation," Taylor said.

"Most central bankers, in their career, haven't really had to deal with inflation. It's a problem for the 70s and early 80s.

"So the situation today is quite unique and the reaction of the Reserve Bank and central bank in the States will be very interesting."

"So apart from being sick with Covid, that's been the downside of the pandemic," he said.

The local NZX stock market has not performed well this year and that, in part, relates to interest rates.

"New Zealand is a relatively small market and we don't have a lot of listed companies and we don't have a lot of listed growth companies or cloud computing companies," Taylor said.

"What we do have is a lot of infrastructure and utility businesses. So when interest rates rise people will say, well, hang on you know ... I can get a better return elsewhere, as opposed to being a dividend-paying stock."

Generally, while Wall Street had performed well, other parts of the world hadn't, he said.

"China has performed quite poorly this year."

There had been a spat with the US about the listing of Chinese tech stocks there.

"So that's caused Chinese tech companies to fall quite a lot this year, Alibaba was one in particular," he said.

There had also been a slowdown in China with a property crisis and fears for highly indebted property development giant Evergrande.

Evergrande crisis: A cleaner sweeps near a map showing Evergrande development projects in China on a wall in an Evergrande city plaza in Beijing. Photo / AP

"So it has been a mixed bag around the world," he said. "Coming back to the US, it has been a small number of stocks driving indexes."

Companies like Microsoft, Apple, Tesla (which surpassed a $1 trillion market cap) and chip maker Nvidia all helped drive the market to new highs.

The pandemic had accelerated change this year and it had shifted the way we behave as consumers with far more business being transacted online, Taylor said.

"I think that's a permanent shift in consumer behaviour," he said.

From a market perspective, there had also been a huge leap in retail investment.

In 2021 the inflow of retail investor money into US stocks had exceeded the previous 20 years, he said.

Market Watch will return in January with a look ahead at what to expect in 2022.

- The Market Watch video show is produced in partnership with Pie Funds.