Taking stock

Analysis: It’s going to be a different ballgame in 2021 after this year’s surprising resilience, writes Catherine Harris. Here are the stocks and sectors to keep an eye on.

At about this time every year, the crystal ball comes out and sharemarket writers and analysts ponder what could be on the horizon for investors in the coming 12 months.

None of them could have predicted this year, which has been a rollercoaster ride like few others.

Firstly, let’s remember how bad it got: As Covid spreadwidely in March, bourses around the world hit deep lows, and US sharemarkets plunged 30 per cent.

But this was followed by an equally strong rebound in April. With the US election passed, and vaccines on the way, global equities were as of late November up 12 per cent.

Although some investors jumped out of growth Kiwisaver funds and lived to rue their decision, others saw the selloff as an opportunity.

Pandemic pessimism triggered huge discounts in even blue-chip stocks. That prompted a huge number of new investors to sign up to apps such as Sharesies and Hatch.

A canny investor after a bite of retirement village operator Ryman, for example, could have bought in at just $6.64 a share at its lowest ebb – the stock is now worth around $14.71.

However, when things looked bleak, any listed company that seemed like it would remain strong or even benefit from Covid was hot property. Primary exporters and certain tech stocks did well; defensive electricity stocks held their ground. Tourism-related stocks, not so much.

So what’s ahead? First, the possible upsides: A less volatile political environment in the US, better contact tracing and vaccines, supportive central banks and the hopeful de-escalation of trading hostilities all bodewell for a return to ‘‘business-as-usual’’, says Mark Lister, head of private wealth research at Craigs Investment Partners.

New Zealand’s rebounding economy has also helped soothe fears of high unemployment.

The risks to the downside? The spectre of inflation, vaccines not being all that good, mutations of Covid-19 and people not getting vaccinated.

So while it’s all speculation, let’s see where the sharemarket could head.

Trading winds: Exporters hate an adverse exchange rate and the Kiwi dollar is poised to rise, given the shape New Zealand is in compared to other countries, Lister says. Inflation: The other big bogey on the horizon is inflation. Stubbs says it remains to be seenwhether after years of low inflation, prices and interest ratesmight start to creep up.

Its return depends largely on whether central bankswill keep providing quantitative easing, and if markets believe that countries will repay the debt. If they don’t, the new money could raise inflation, making term deposits look attractive again.

Lister believes central banks will continue to be supportive, and that if inflation does resurface next year, it won’t be very strong. Five years out might be a different matter, he says.

‘‘The one thing that remains certain is that markets will remain volatile,’’ Stubbs says.

‘‘I can see scenarios where markets are substantially higher if you continue to print money, and the retail public continues with its enthusiasm for share trading through these new apps.

‘‘There’s definitely amove out of term deposits and other supposedly income-generating assets that no longer generated assets for equities, for dividend yield. There’s no reason that shift of cash is over.

But any sniff of sustained inflation or some major financial shock, and sharemarkets could end up substantially lower instead, he says.