In our last article we evaluated market estimates and predictions from 2012. As discussed in that article, attempting to forecast the direction of shares, currencies and interest rates is very difficult to do, especially with any accuracy or consistency. However, foretelling the future is a useful exercise for investment advisers and strategists, to create discussion and encourage some debate and thought.
On that note, how will the market perform in 2013 and what sort of themes should investors be thinking about? Here are ten predictions for the year ahead:
1. Returns from shares again beat fixed income and residential property
Shares were the best place to invest in 2012, and we think they will take first place again in 2013. Dividend yields remain much higher than interest rates, companies are in good financial shape, earnings are growing and investor sentiment is likely to move further in favour of shares.
2. Australian shares
For the last three years the NZ market has been a much stronger performer than Australia, although this could turn around over the coming year. Australia has cut interest rates aggressively, China is stabilising, so watch this space for Australian shares.
3. The Official Cash Rate (OCR) is unmoved all year
We can't see any reason for the Reserve Bank of New Zealand to increase interest rates until sometime in 2014. We might get a bit of a growth boost from the Christchurch rebuild, but it won't justify any movement in rates and investors looking for income won't get any reprieve from the current low interest rate environment. While many high-dividend companies have already performed well in the wake of low interest rates, others still look reasonable value and should continue to attract attention in 2013.
4. At least five new companies list on the NZX
With or without SOEs, activity (in terms of new listings and opportunities) should continue to build. The market is strong, sentiment is high and there is a lot of cash still sitting in low-return bank deposits. In 2013 we might have the best year for some time when it comes to new investment opportunities. A key beneficiary of this trend would be the NZ stock exchange.
5. China recovers
Chinese economic growth for the September quarter was 7.4%, having consistently slowed since the first quarter of 2010. This could well be a turning point and we might see growth in China start to reaccelerate over 2013.
6. Growth shares do better than high income shares
Over recent years the safe, defensive, high-yielding shares have been outstanding performers. They still look attractive and will hold up well, but next year we might see a continuing rebound for some of the more cyclical companies, such as those in the building sector, those exposed to equity markets or the retailers. Under such a scenario the midcaps and smaller companies may also continue to outperform their larger peers.
7. The Christchurch rebuild gets properly underway
After many delays, we are finally seeing signs of the rebuild process gathering some decent momentum. This should help economic growth as a whole, as well as benefit the construction sector and stocks.
8. A Good Year for top IT Companies
There is potential for large international IT companies to grow this year.
9. American house prices outpace Auckland house prices
Auckland house prices were great for property investors in 2012, rising over 10%. The Auckland market still has strong fundamentals, but even the most one-eyed property investor will concede that valuations are beginning to look pricey relative to rents and incomes. American houses are just starting to show some strength after many poor years, and the wealth effect this will have on sentiment and the US economy is significant.
10. The New Zealand dollar falls
If ever there was a contrarian call at the moment it would be for the NZ dollar to weaken (or the US dollar to strengthen). Like most economists, our view is that the currency remains around where it is over 2013, but it's worth raising as a scenario because if it does fall, many investors are very poorly positioned. Following the outstanding performance from the local market in 2012, investors have been driven even further into domestic assets.
New Zealand's currency is strong because the economy is strong, so we shouldn't be too eager to see it collapse. But a bit of weakness would help our exporters out and a better-than-expected US economic rebound would see the languishing US dollar recover. If nothing else, we should give some consideration to the possibility of international markets outpacing the local market over the coming year and use our strong currency to add some good quality global companies.
We have a positive view on local companies with offshore earnings, should we see some currency weakness, these companies would benefit even further.
We will report on market conditions over the coming months, and evaluate these 10 predictions this time next year.
Mark Lister is the Head of Private Wealth Research for Craigs Investment Partners, which is one of New Zealand's largest independent investment firms.
He joined Craigs Investment Partners in early 2004 as an equity analyst specialising in property and small cap research. In 2007, Mark was appointed Head of Private Wealth Research.
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