Unpredictable year ahead for investors and forecasters
INVESTORS needed to stay on their toes over the past 12 months in what turned out to be the most unpredictable of years. 2015 looks set to be equally challenging, with concerns emerging over developing global economic and political events that could have dire consequences if the worst predictions of some analysts are accurate.
Fortunately such forecasts rarely turn out to be fulfilled to the letter: no expert, as far as I know, predicted that global oil prices would halve in price this year.
However New Zealand investors could suffer whiplash from escalating global headwinds. These include political fallout from massive declines in oil revenue in Russia, Venezuela, Iran and Nigeria; worrying geopolitical problems in Central Europe including Russia; fears over Japan’s flagging economy with grave doubts over its government’s reform strategies and ageing population; the political minefield in the Middle East; and the slowing economic growth in much of the world – including China, Europe and even Australia.
The United States is an example of how forecasters can be wrong.
Last year few believed it would succeed in reinforcing its role as the world’s economic powerhouse, helped by booming domestic production of oil, low interest rates and inflation. This has helped its sharemarket (and other markets including the NZX that follow its lead each day) end 2014 in high style.
Last week the main indices, the Dow, S&P 500 and Nasdaq, enjoyed heady pre-Christmas gains after the Federal Reserve Bank said it could be patient about raising rates: an announcement that sparked enthusiasm in other global markets.
Massive global excess supplies of oil and gas, and falling demand, will bring wry smiles to those of us who recall the oil crisis 35 years ago. This spurred the Muldoon multi-billion dollar Think Big strategies to try to make us less dependent on oil, including the partial electrification of the North Island main trunk railway. Those fretting about Peak Oil have gone quiet.
This time last year there were only muted concerns about Chinese growth, or how its government’s plans to reshape its economy would pan out. Latest data show continued falls in its manufacturing production. The flowon effects are being seen in sharply falling prices for many commodities including iron ore and coal, and slipping prices for mining stocks.
Last December Australia still seemed the lucky country after years of high returns from its mining sector. An economic slow-down is under way there including falling business confidence and flat building figures. Unemployment is at a 12-year high and is encouraging Kiwis to come home for better work opportunities as our economy looks in better shape.
Who would have expected a few months ago that the Australian dollar would be back so close to parity with the kiwi? Aussie optimists believe their dollar will continue to fall against the US, that the recently signed China Free Trade pact will be positive for their economy next year, as will low interest rates. In two years Australia is expected to benefit from Canberra’s plans to copy our Government’s massive spending on major roads.
The near parity of the aussie-kiwi is providing an opportunity for Kiwi investors to diversify more of their investments to Australia.
However in 2014 investors here will have been better to concentrate on major local stocks: outstanding gains so far this year include Fisher and Paykel Healthcare up 60 per cent, Meridian 72 per cent, Mighty River 40 per cent, Spark 35 per cent and Contact 20 per cent. Fletcher Building, due to its big Australian exposure, is down 6 per cent, while investors in IT stocks, including Xero and SLI Systems had a volatile ride.
An ideal recommended diversified Kiwi portfolio of Aussie stocks is likely to include a number of stocks that have lost money. This includes BHP (down 27 per cent), National Australia Bank (owner of the BNZ) 10 per cent, Woolworths (owner of Countdown) 13 per cent, and Woodside Petroleum 9 per cent. Against this biopharmacy company CSL rose 24 per cent.
Optimists are hoping that stocks including BHP, Rio, CSR, Downer and Woodside Petroleum may return capital next year. BHP will be in the news next year when it plans a major demerger to isolate its Southern Hemisphere aluminium, nickel, silver and coal assets into a new company. Directors seem to think they have come up with something new in the name South 32 to reflect the latitude of its South African and Australian operations. This will be reminiscent to those of us who like to enjoy the odd tipple who recall the once popular Dunedin whisky 45 South, and 42 Below vodka.
This Christmas many Auckland residents will be celebrating extraordinary rises in the value of their homes over the past year: their gains will have beaten just about anything else. A cautionary note: Auckland has always had an especially volatile housing market. Prices there slumped much more than anywhere else, including Wellington, after 2007.
This is my last column for 2014. May I wish readers the best Christmas possible and some good wins in 2015.