New Zealand's strength in business innovation is likely to be key in an acceleration of economic activity in 2021, a leading investment analyst believes.
Andrew Bascand, managing director of Harbour Asset Management, says the economy is ending a tumultuous 2020 with positive vibes, a situation he says investors should take confidence from.
"I am optimistic the economy will continue to improve in 2021," he says. "The way we have dealt with Covid should give people confidence, which is not the case in many places around the world and while our unemployment rate is higher than last year, it is much less than expected.
"Innovation - not a 'sugar rush' from policy stimulus - is the key to future prosperity and Kiwis are great innovators and adapters."
He says Covid-19 is not a financial, housing or sharemarket crisis. "We call it an exogenous shock (not of our making) and in some ways its impact is like that of an earthquake or a devastating hurricane.
"For many businesses 2020 has been an extremely difficult year. Some haven't survived while others are changing significantly," he says. "But new opportunities are arising and how we learn, adapt and do things differently will impact on our productivity and prosperity."
Bascand believes the equity market remains a viable investment option and that new opportunities will open in a range of sectors – among them health and well-being, smart technology, online retail, and the demand for home offices and technology. Through all these sectors we expect more emphasis on the environmental and social justice.
"Ultimately, I suspect the biggest innovation we are excited about is a safe and effective vaccine to protect against Covid-19. It is astonishing that the world community has come up with not one but at least three vaccines in less than nine months with up to 95 per cent efficacy.
"The arrival of a vaccine will allow those parts of the economy that have been closed to open to a higher level of activity and give people a lot more confidence in the recovery now than what they would have had back in April – June."
He says while many Kiwi investors should have faith in investing in diversified portfolios, people still need long-term investment goals, and be prepared to take advice. Despite the volatility experienced in 2020, they need to keep investing.
"We learnt a lot of lessons from the global financial crisis (in 2008) and the Christchurch earthquakes, while our health policies have been honed through many pandemic planning models. The stress of a recession and the lockdown experience has spawned ideas and change not only here but across the world."
Bascand says the Covid experience may be re-shaping consumption habits with early indications suggesting a strong consumer shift to health and wellbeing purchases for example. Although there may have been some hoarding of products (in the wake of Covid), companies with strong wellness and health-focused brands are likely to be large beneficiaries, particularly those selling in Asia.
Rapid adoption of online payments is taking place in the banking and finance sector. "Although this hardly seems like news in New Zealand which has been an early adopter of many innovative technologies, in Australia the National Australia Bank's CEO Ross McEwan said recently he expected more than 10 years of financial innovation may be adopted in less than two years.
"Another big winner has been the European company Adyen which provides mobile and point-of-sale systems, electronic wallets and links with many card schemes - and which recently reported a 34 per cent lift in revenue."
Bascand says globally investors are seeing a stronger commitment to environmental and social justice issues: "We note that large infrastructure investors Macquarie Group and Infratil have both continued to point to renewable investments as fertile ground for new public-private investment funding."
The impact of the Covid lockdowns when Kiwis had to stay home has led to a surge in demand for eating at home, sports gear, home improvements and investment in home offices and technology while in the US and China these categories appear to be trading better than dining out and spending on luxury brands.
Bascand says even a modest shift to more agile work practices (such as working from home) could have significant impacts for many sectors including inner city retail spending, public transport, parking demand and road congestion. But, on the upside, this has resulted in a lift in more spending at a local or suburban level.
However he says there are still unknowns. "Will Covid finally be contained, will we re-open our borders, will we see negative interest rates in New Zealand? With low interest rates making mortgages more available, will house prices keep rising?
"Companies put a big focus on cost savings in 2020 and invested in technology and productivity improvements; will this reset impact wages and the performance of stocks? These are some risks we are watching for in 2021."
For more information on Harbour Asset Management go to: www.harbourasset.co.nz
# This article does not constitute advice to any person (www.harbourasset.co.nz/disclaimer)