Harbour Navigator: New Zealand’s weakening export outlook to provide multiple challenges
Slowing global demand, led by a stalling Chinese economy, has seen New Zealand’s commodity export prices fall sharply in recent months.
Weaker export revenues will likely weigh on economic activity, supporting our view that further Reserve Bank of New Zealand (RBNZ) rate hikes are not necessary and causing a further deterioration in the fiscal accounts that may require additional bond issuance.
Export weakness is also likely...
Harbour Outlook: Inflection points for interest rates and earnings?
Key points
It was another strong month for equities, with the MSCI All Country World Index (ACWI) returning 2.0% in New Zealand dollar terms, and 3.2% in New Zealand dollar-hedged terms. Closer to home the S&P/NZX 50 Gross index (with imputation credits) advanced 1.2%, whilst the S&P/ASX 200 Index added 2.9% in AUD terms (and 2.4% in NZD terms).
Globally, returns were strong across all sectors, with energy leading the way at ...
Harbour Navigator: After the inflation peak
Investors should gradually gain confidence in most assets, as pessimism in the outlook for the economy gives way to understanding that highly restrictive monetary policy has done its job.
Despite the range of risks for financial markets, falling inflation has certainly been a positive factor for broad investment returns. Up until recently equity markets have also enjoyed a period of generally better than expected corporate ea...
Harbour Outlook: Is a soft landing really possible?
Key points
It was a strong month for global markets. The MSCI All Country World Index (ACWI) returned 3.5% in New Zealand dollar terms, and 5.4% in New Zealand dollar-hedged terms. Returns were strong across all sectors, with consumer discretionary standing out at 9.9%. There was a general shift towards cyclical sectors with industrials and materials rounding out the top 3.
Australasian markets also rallied, with the S&P/NZX ...
Investment Horizon: Top 10 risks and opportunities for 2023 – A mid-year reflection
At the risk of jinxing things and, barring a few weeks in March where the collapse of Silicon Valley Bank looked like it could create broader risks for the banking system, the first half of 2023 was relatively uneventful. Particularly when compared to the corresponding periods
in 2020 and 2022.
After a year of negative returns for both bonds and equities, “the scores on the board” look healthier for both. Equities have bounc...
Harbour Outlook: AI: the fourth industrial revolution?
Key points
The conflict between observed inflation and soft lead indicators for economic activity continues to influence interest rates and economic forecasts. While some central banks may pause from raising rates, the overall balance of risks tilts towards tighter financial conditions. Investments with robust fundamentals and manageable debt levels are preferred in this environment.
It was a weak month for Australasian marke...
Harbour Navigator: Is inflation sticky?
After an aggressive RBNZ tightening cycle, the New Zealand economy is likely to enter recession later this year.
Inflation, however, is unlikely to quickly return to the RBNZ’s 1-3% target range and involves three broad steps – supply chain normalisation, lower housing costs and a drop in wage growth. Only the first step is complete.
We expect the RBNZ to increasingly recognise the impact of its rapid rate hikes to highly...
Harbour Outlook: Catch-22 - Inflation vs. Earnings
Key points
At a headline level, stock markets appear to be in a “catch-22”, digesting lower inflation numbers while trying to assess how much of this inflation is down to lower growth, which may then flow through to earnings. See more under ‘what to watch’.
New Zealand equities and bonds both delivered strong returns over the month, with the S&P/NZX 50 Gross index (with imputation credits) returning 1.1% and the Bloomberg NZ ...
Harbour Navigator: New Zealand's external reliance is in the spotlight
New Zealand is a small, open economy with a heavy reliance on the rest of the world for export revenue and funding.
The funding reliance is particularly acute currently as our tourism sector isn’t generating its normal amount of foreign revenue, pushing our current account balance to its largest deficit on record, almost 9% of GDP.
While our current account balance should improve as tourists continue to return to New Zea...
Harbour Navigator: Chinese economic recovery accelerating
Less than six months ago the Chinese economy was partly locked down with COVID restrictions and commentary remained bearish across a range of industries.
Fast forward to now and Chinese non-manufacturing purchasing managers’ index (PMI) readings are pointing to a very solid recovery in Chinese economic activity from 2022’s COVID lockdowns.
A core indicator, the China non-manufacturing PMI for March of +58.2 was well up fro...
