Business & Investing: Andrew Patterson's review of global and local investments' performance this year vs last, and the top and bottom shares on the NZX
After rallying more than 140 points at the start of the week as the NZX50 attempted to push back above the 13,000 level, the market proceeded to lose all its early gains finishing the week more-or-less where it started the month at 12,718. The local market has now all but wiped out the 5 percent gain it made in August, the last month it finished in the green, and is now almost back at the level it finished at on July 29.
Globally, markets initially responded positively to news from the US Federal Reserve that it would end its bond buying programme in March, three months earlier than had previously been forecast, paving the way for interest rate hikes to begin next year.
However, by week’s end some of that initial enthusiasm had begun to wane with the benchmark S&P500 index closing down 1.9 percent for the week, while the tech-heavy Nasdaq Composite also whipsawed after enduring its worst trading day since late September on Thursday and falling 2.9 per cent for the week.
Analysts pointed out that while there is now clarity on when the Fed will begin tapering its monthly bond purchases significant uncertainty remains about exactly when it will begin hiking rates, with rising nervousness that the first rate hike could happen as soon as March.
In other central bank moves, the Bank of England last week moved to raise interest rates from 0.1 percent to 0.25 per cent in an attempt to dampen inflation that has risen far above its target. Markets are now pricing in a roughly 70 per cent chance that the BoE will raise rates further at its next meeting. The European Central Bank also announced it would begin to scale back its pandemic-era bond purchasing programme in response to surging prices, although officials indicated they were unlikely to raise rates until at least 2023.
Spiralling Omicron cases globally, particularly in the UK where a record 90,000 new Covid cases have been reported in a single day, plus news that the Netherlands would reintroduce strict lockdown measures also unnerved investors.
On commodity markets, Brent Crude oil futures fell 3.1 percent for the week to US$72.96 a barrel, while gold gained 0.8 percent to US$1798 an ounce but struggled to push above US$1800 where it has previously struck resistance.
Bitcoin fell 7.5 percent for the week to US$47,500, its lowest weekly close since late September while the NZ dollar also closed at a new low for the year of 67.41 US cents, down 0.8 percent for the week.
THE YEAR IN REVIEW
2021 hasn’t exactly turned out to be the year investors were hoping for this time 12 months ago.
The optimism that dominated financial markets at the end of 2020 following the discovery of multiple new vaccines and a growing sense that 2021 would be the year of recovery largely failed to materialise.
The emergence of the more transmissible Delta variant, and now joined by the highly infectious Omicron outbreak, jammed up supply chains and inflation rates spiking to levels not seen for more than 30 years has left investors nervous about what might be ahead in 2022, while volatility has become the market’s new mantra in response to daily news headlines that have seen markets swing wildly in recent months.
Just to refresh readers' memories of where we ended last year, 2020, across a range of investment classes, here’s a brief summary:
- Bitcoin +220 percent
- Gold +23 percent
- US shares (S&P500) +14 percent
- NZ shares +12 percent
- NZ/US dollar +5 percent
- Australian shares -1 percent
- Brent Crude Oil -23 percent
The rankings for 2021 (albeit with 8 trading days still remaining but unlikely to change materially) look very different:
- Brent Crude Oil +44 percent
- Bitcoin +42 percent
- US shares +24 percent
- Australian shares +9 percent
- NZ shares -3 percent
- NZ/US dollar -6 percent
- Gold -6 percent
Bitcoin delivered another year of solid returns, marked by plenty of stomach churning volatility in between, US shares, largely driven by the tech heavyweights such as Google, Apple and Microsoft, provided another year of double digit returns, while the Australian sharemarket significantly outperformed the local market with the NZX50 on course to record its first negative year since 2011. The NZ dollar is finishing 2021 at its low point for the year and gold has had a disappointing year, failing to act as the traditional safe haven in times of inflation ending the year down 6 percent.
On the local market, some of last year’s top performers, including a2 Milk and Pushpay Holdings, fell decidedly out of favour with investors this year, while some of last year’s underperformers including Sky Television and Heartland dramatically reversed their performance this year.
Skellerup Holdings takes the prize for most consistent performance since the onset of Covid-19, managing to outdo last year’s 50 percent share price lift with a further gain of 64 percent this year. Mainfreight was another consistent performer with a 30 percent lift in its share price this year despite supply chain bottlenecks proving to be a headache for freight and logistics operators globally.
Here then are the top 5 and bottom 5 NZX50 stocks for 2021.
2021 NZX50 TOP 5* as at 17 Dec (2020 performance)
- Sky Television +70 percent (-57 percent / Bottom 5)
- Skellerup +64 percent (+50 percent)
- Heartland +40 percent (-10 percent)
- EBOS +30 percent (+18 percent)
- Mainfreight +30 percent (+62 percent)
*Based on price change between Jan 4 and Dec 17
2021 NZX50 BOTTOM 5* as at 17 Dec (2020 performance)
- A2 Milk -53 percent (+43 percent)
- Meridian Energy -44 percent (+50 percent)
- Synlait Milk -36 percent (-43 percent)
- Pushpay Holdings -32 percent (+78 percent / Top 5)
- Ryman Healthcare -19 percent (-10 percent)
However, the overall prize for best share price appreciation in 2021 goes to one of the market's most out of favour stocks in recent years. Rakon shares surged 30 percent in the first week of the year, which should have been a hint to investors that something was up. In the end, Rakon is set to finish the year up a whopping 210 percent as a global chip shortage has seen its fortunes dramatically improve. Calculated since March last year, when the shares hit an all-time low of just 16c, the gains are even more impressive, coming in at an eye-watering 1,000 percent, even better than Bitcoin!
On the flip side, NZ-based buy now, pay later provider Laybuy Holdings which listed on the ASX late last year boasting of a promising future developing its presence in the UK saw its shares tank 82 percent in value this year, falling to just 16c at one point last week after cost blowouts and a growing sense that the sector is ripe for consolidation saw investors dumping the stock in droves in recent months.
In the US, a few of last year’s recovery stocks failed to match their performance this year, most notably Zoom which saw its shares dive 45 percent after last year’s gain of 500 percent, while travel stocks continued to lose ground, including cruise operator Carnival Corp which saw its shares fall a further 10 percent this year after last year’s 60 percent plunge. Tesla shares peaked at US$1200 in early November but have since fallen back after founder Elon Musk announced he was reducing his shareholding. The shares are up a more modest 28 percent for the year compared with last year’s explosive 680 percent gain.
As markets prepare to close the books on what has been a difficult and volatile year, there seems little certainty or agreement about what 2022 has in store for investors.
- Is inflation set to escalate or is it a temporary phenomenon as central bankers seem to believe?
- Just how quickly will interest rates have to rise in 2022? Will it be slow and steady or might central banks have to hike rates more quickly than they would otherwise like to combat rising inflation?
- Will Omicron become the new dominant strain potentially overwhelming healthcare systems globally and potentially requiring lockdowns to be reintroduced?
- Will international borders be able to reopen, thereby kickstarting global tourism once again or will continued outbreaks require borders to remain firmly shut for another year all but guaranteeing many tourism businesses will be unable to survive?
- How could further collapses amongst China’s major property developers following on from the failure of Evergrande and Fantasia potentially impact the country’s economy and what global ramifications might this create? (According to Bloomberg, the richest bosses behind China’s leading property firms are estimated to have lost a combined US$46 billion this year)
- Will global supply chain congestion resolve itself once backlogs are cleared or is this set to become a permanent feature of international commerce well into the future and how will this impact critical ‘just in time’ manufacturing systems?
- After another year of extreme weather events, what other dramatic weather related outcomes will 2022 bring and will financial markets finally have to begin pricing in the looming impact of climate change and government commitments to reduce emissions that were made at this year’s COP26 conference?
- Finally, will higher interest rates finally begin to cool New Zealand’s rampant property market which has defied the odds and continued to push higher or will the RBNZ be forced to introduce even more aggressive tools to avoid a potential property bubble?
With next year shaping up as a ‘stock pickers’ market, investors will need to remain nimble in what is likely to be another volatile year with the only certainty being that there’s going to be plenty more uncertainty lurking as Covid shows no sign of slowing and inflation shows no sign of waning, for now.
As legendary US investor Warren Buffet puts it: “What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.”
That’s likely to be good advice for what is expected to be another challenging year.
This column will take a break over the holiday period and will return on Monday, January 24.
Season’s greetings to readers and best wishes for a well-deserved summer break.
