Rollercoaster ride
The pandemic-fuelled rollercoaster of 2021 ran unabated through 2002 but there is hope we’ll see the value of Kiwi companies lining up with performance and some kind of return to normality in 2023.
The squeeze that central banks have applied to consumers in 2022 means it’s no secret that economic conditions will be tougher in 2023. That might have some negative impact on earnings, but if investors can see a light at the end of the inflationary tunnel and a peak in interest rate hikes then there may also be some cause for optimism.
“The inflation peak will very soon be behind us and the end of OCR hikes is within sight,” said Craigs Investment Partners head of research Mark Lister.
“This will please financial markets, although I suspect the focus will very quickly shift to the impact all this monetary tightening will have on economic activity, as well as corporate earnings.”
Grant Davies at Hamilton Hindin Greene says company performance has “on the whole been quite good” over 2022, and his outlook is cautiously optimistic.
“There are some attractively priced companies in the market at the moment, but obvious headwinds as we head into an engineered recession,” he said. “On the positive side, some indicators are beginning to show inflation is coming under control.”
Craigs’ Lister says it’s important to remember that financial markets look forward. “For the economy, the worst is almost certainly ahead of us, with next year set to be a more difficult one than 2022. However, it might be a case of: ‘weaker economy, better markets’.”
He noted the NZX50 peaked in January 2021, almost two years ago, and it has fallen about 15 per cent since then.
“The economic challenges ahead aren’t lost on investors
. . . it’s important to be cautious given all the uncertainties around it, but investors also need to be willing to stay invested and to take opportunities when they present themselves.”
HOUSE PRICES
They rose fast in 2021 and they fell fast in 2022.
Auckland house prices, up 24 per cent last year, had by November fallen annually by just over 18 per cent or an astonishing $235,000, or $643 a day.
Nationally , according to Real Estate Institute numbers, the annual house price dropped 12.4 per cent from $925,999 to $810,000 in the same period.
Other annual drops recorded in November included Hawke’s Bay (-17.2%) Wellington (-17.4%),Manawatu/ Whanganui (-8.2%), Waikato (-7.4%). Bay of Plenty (-3.7%) , Northland (-2.7%).
Tony Alexander, an independent economist, has even forecast the floating mortgage rate could go as high as 9.5 per cent by midway through 2023.
GLOBALLY
Investors found few, if any, safe havens in 2022, as central banks raised interest rates for the first time in years to fight surging inflation, stoking fear of a global recession.
Consumers paid more for energy, food and just about everything else. Borrowing to buy a home got costlier.
On Wall Street, the benchmark S&P 500 index fell into a bear market by dropping more than 20 per cent from the record high set in early January. The energy sector was the lone winner, while technology stocks tumbled.
A rout in the bond market was a particularly painful turn for fixed-income investors. Cryptocurrency investors weren’t spared either.
TESLA ON AUTOPILOT?
You can’t blame Tesla shareholders for feeling jilted. With CEO Elon Musk’s focus diverted by his acquisition of Twitter, Tesla shares lost more than half their value.
Most of Musk’s wealth is tied up in Tesla stock, which started falling in April when he disclosed a stake in Twitter. The falling stock price bumped Musk into second place on Forbes’ list of the world’s wealthiest people, behind Bernard Arnault, chairman of luxury goods maker LVMH.
CONSUMERS FEEL PINCH
The highest inflation in four decades is hitting consumers right in their wallets.
Households coping with higher prices are likely depleting savings built up during the pandemic. Wages went up, although not at the same pace as inflation. Credit card debt ballooned, and rents increased.
UKRAINE WAR IMPACT
Russia’s invasion of Ukraine in February sent prices soaring for the commodities the world runs on: oil, natural gas, and wheat.
European prices for natural gas rose to 17 times their prewar levels after Russia choked off most supplies over the war. Global oil prices spiked as Western buyers shunned Moscow’s crude, sending Brent to nearly $200 barrel in May. Record wheat prices spurred disastrous food inflation in poor countries.
In New Zealand, the government introduced a 25-cents-per-litre discount, which will now continue to the end of February, halving in March.
By year end, oil had fallen back to around $130 and motorists got some muchneeded relief.
CHINA DITCHES ZERO COVID
China’s economic growth and stock market slid in 2022 under pressure from pandemic controls and corporate debt.
The world’s second-largest economy shrank by 2.6 per cent in the three months ending in June compared with the previous quarter after Shanghai and other industrial centres shut down to fight outbreaks. Forecasters say annual growth might fall below 3 per cent , among the lowest in decades.
In response, the ruling Communist Party has eased off anti-disease restrictions and tried to revive the struggling real estate industry.
CRYPTO’S WILD RIDE
The year began with bitcoin above $72,000 and the crypto industry making further inroads among politicians and mainstream financial institutions. As 2022 ends, bitcoin is below $27,000 and the industry is reeling from another crisis.
FTX, the second-largest crypto exchange, unravelled in November after questions about its financial strength prompted customers to request large withdrawals. It filed for bankruptcy protection November 11. Founder Sam Bankman-Fried was arrested in the Bahamas and faces criminal charges in the US.
STREAMING WARS
Netflix, Warner Bros Discovery and other big entertainment companies tumbled in 2022 as streaming services struggled amid increased competition and rising inflation stifled advertising spending.
Consumers who'd been cooped up during the pandemic went out and turned off their streaming services. The sheer number of streaming options also left companies in a fierce fight for viewers’ attention.