The New Zealand sharemarket is headed for another down year. Photo / 123RF
September is known to be a weak time for investment markets, and so far it is living up to that reputation, particularly for the NZX.
Craigs Investment Partners noted this week the NZX50 was already down more than 2 per cent so far this month, pushing the benchmark index into negative territory on a year-to-date basis for 2023. It’s down around 1.5 per cent this year.
Craigs Investment Partners investment director Mark Lister said it had been a tough year for the New Zealand bourse.
“Last year we were down 12 per cent, so we have had a better year than that. I think at the moment we are down maybe 1.5 per cent - better than last year, but certainly running below the long-term average of 8 or 9 per cent.”
Lister noted the NZX was also underperforming compared to international markets. The US is up; Europe, Australia, UK are all up. “We are down. We are the odd one out.”
“I think there’s a few reasons. We had been ahead of the curve more than most in terms of hiking interest rates.”
Lister said New Zealand was one of the first countries to start hiking its official cash rate and one of the first to get to the top of the hill.
“We have arguably put the brakes on more than most - which is good, which means we are through that process.”
Lister said the NZX also didn’t have a tech sector to speak of, and when you took out the tech sector, the US did not look as exciting as the headline figures suggested.
“Outside of all the high-flying tech stocks and AI stocks, that small group, the rest of the market has done not much either. We probably aren’t as far behind as we might look when you account for that.”
Lister said the election was a big part of the drag on the market as well.
“In the lead-up to an election, in any country - you will see this next year in America - they will have a period of uncertainty and nervousness. People just sit on their hands: businesses, investors and consumers. That has definitely played a role.”
Lister said history typically showed in the wake of an election, the market usually went up as people gained more certainty.
“Even if you are not happy with the outcome, you tend to get on with things. And then [if] you get a National victory, which is the way the polls are heading, you tend to get a stronger performance from the sharemarket in the wake of that.”
Lister said things were looking more positive.
“Business confidence has rebounded quite strongly, businesses are seeing light at the end of the tunnel, the Reserve Bank is done with its rate hikes, the next move will in all likelihood be down. You have got migration that is surpassing all expectations, which is good and bad.
“And the housing market has finished falling and it’s starting to rebound. I don’t think it’s going to rocket ahead in a big way, and I don’t think we want it to.”
Lister said having a stable housing market was a huge positive for confidence and a boost for the construction sector, which had been in the doldrums for the last 18 months.
“Construction has been in recession for a good 12 or 18 months, and now construction firms are feeling a whole lot better because of what you are seeing with the housing market. I think you put all those things together and it is easy to look ahead and feel a lot more optimistic about our sharemarket.
“I think we are set up for a reasonable end to the year. And probably a positive one next year.”
The US IPO market appears to be open again. UK chip designer Arm is set to begin trading this week after its IPO was five times oversubscribed. Arm’s float is the largest listing in two years, with the company set to be valued at around US$52.3 billion, according to the Financial Times.
The listing is being closely watched as a gauge for how other tech listings could go.
But what about breaking the listing drought here in NZ?
“Don’t expect anything this year,” Lister says, “But next year, absolutely.”
Lister said an IPO meant someone was either looking to raise new money or sell a business.
“You want to do that in a strong environment because you want to get the best price. If you are raising new capital, you want to raise it at a good price.
“IPOs tend to happen in strong markets, not weak markets.”
He said the negative year last year and so far this year meant there was no surprise there were no new listings.
“But once you have got the election behind you ... next year, we will all be talking about: ‘When will the Reserve Bank cut?’
“Once people start talking that way, optimism will build, because that’s what we will all see on the horizon. I think next year will be a year [in which] some of these IPOs that probably have been waiting in the wings might actually happen.”
The New Zealand Superannuation Fund has certainly benefited from its low exposure to the New Zealand sharemarket.
Figures released by the fund this week show it posted a return of 11.87 per cent over the year to June 30, helping to boost it to a record $65.4b.
Only 4 per cent of that money was invested in New Zealand equities, while 44 per cent was invested in global equities.
The fund has done better than the average return for KiwiSaver growth funds, which was 10.4 per cent for the year to June 30, but not as good as the top growth funds, according to Morningstar data.
The top-performing growth fund was the Quay St Growth fund, which is managed by the NZX. The NZX bought QuayStreet Asset Management from Craigs Investment Partners last year in a deal worth up to $50 million. But it is tiny in comparison to the Super Fund.
The Quay St Growth fund had just $248.5m in it. The second-best performer was the Generate Growth Fund, which was up 14 per cent, followed by the Milford Active Growth fund, which rose 13.9 per cent. Of course, past performance is no guarantee of future performance.
Peter Beck has fronted on his sale of US$20.23m ($34.25m) worth of Rocket Lab shares earlier this week.
The shares were held by a trust controlled by the Rocket Lab founder and CEO and his wife Kerryn Beck.
”I sold a small holding yesterday for estate planning purposes and to capitalise my charitable foundation. No further sales planned for the foreseeable future,” the CEO and founder said in a post to X (formerly Twitter).
Beck sold around 3.6m shares for US$5.62 each - a much better price than the US$3.48 they were changing hands for earlier this year, but still well shy of the Kiwi-American firm’s price when it first listed on the Nasdaq in August 2021 (US$10.00) or the September 2021 liftoff that saw it briefly reach an orbit of just under US$20.00.
Beck had 54.4m shares ahead of the sale, meaning he offloaded 7 per cent of his stake.
That stake amounted to 11.3 per cent of Rocket Lab before the sale. Beck now owns around 10.5 per cent of the firm.
Rocket Lab had a US$2.6b market cap at its Wednesday close, valuing Beck’s remaining stake at just over US$278m ($460m).
His firm recently reported second-quarter results which came in above the mid-point of guidance as revenue grew 12 per cent to US$62m and its net loss widened to US$45m (the company still has US$419m of the funds raised with its Nasdaq listing).
Rocket Lab will reach a pivotal moment next year, when it’s on schedule to stage the first launch for its larger, crew-capable Neutron rocket - for which it will charge customers US$55m per launch, a big step up from the Electron’s US$7.5m.
Additional reporting Chris Keall.
Economic recovery is coming but won't solve structural problems.