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Harbour Outlook: Tricky transition favours stock picking

  • The MSCI All Country World (global shares) Index rose 4.0% in USD in December, taking the three-month return to 6.7%. The same Index rose 3.1% in NZD terms over the month, and with the New Zealand dollar weakening in the past quarter, the three-month return in NZD was stronger at 7.5%.
  • The New Zealand 10-year bond yield dropped to 2.39% from 2.49% during December, while the US 10‑year bond yield rose from 1.44% to 1.51%. The move in New Zealand yields contributed to positive performance across domestic bond indices, whilst global indices fell.
  • Interest rate yield curves flattened over December as central banks globally (the Reserve Bank of Australia being the laggard) acknowledged inflation may be more than transitory and began lifting official rates. At the same time, ongoing shortages and maturing of the economic recovery contributed to the global equity market earnings revision upgrade ratio slowing, to be only slightly positive. This lift in rates and slowing earnings revisions is likely to contribute to a lift in equity market volatility.
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Harbour Team | Posted on Jan 12, 2022
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Top 10 risks (and opportunities) for 2022

Looking back on 2021 it is interesting to ponder how it will go down in history. Could it be seen as the year that inflation had a momentary resurgence before fading back into the background, or the year that entered us into a new normal? Could it be seen as the year that the 2021 United Nations Climate Change conference (COP26) brought about meaningful climate change mitigation? Could it be seen as the year that sent Chinese stocks into a bear market or the year that provided the buying opportunity of a generation?

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Hamish Pepper, Chris Di Leva | Posted on Dec 17, 2021
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Harbour Outlook: Push and pull factors dictate equity returns

  • The MSCI All Country World (global shares) Index fell -2.5% in USD in November, taking the 3-month return to -2.0%. Returns in NZD were positive due to a weakening domestic currency, delivering 2.9% in November whilst the 3-month return was 2.0%.
  • Global equity markets fell materially on the combination of Omicron COVID variant headlines, the challenges of northern hemisphere lockdowns and the likely upward trajectory of interest rates following strong inflation data.
  • While the Reserve Bank of New Zealand (RBNZ) raised the official cash rate (OCR) by 0.25%, their accompanying commentary was more balanced, reducing the risk of aggressive monetary policy tightening.
  • Globally bond yields fell on news of the Omicron variant; the New Zealand 10-year bond yield drew back to 2.48% from 2.63%, while the US 10-year bond yield fell from 1.55% to 1.44%. This contributed to positive performance across bond indices.
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Harbour Team | Posted on Dec 8, 2021
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Exorcising New Zealand’s inflation demon

  • NZ inflation has rapidly accelerated and the RBNZ has started to raise rates to exorcise this demon
  • We think inflation pressures go beyond transitory and will require further policy tightening
  • This carries risks for asset prices and the latest Omicron COVID-19 variant suggests some volatility is likely along the way
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Hamish Pepper | Posted on Dec 7, 2021
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‘Long COVID?’: September 2021 New Zealand stock market reporting season net positive but impacted by COVID-19

  • Results ahead of expectations
  • COVID-19 continued to hit sales & costs, offset by pricing power for some
  • Structural growth stocks continued to beat expectations
  • Several capital raisings to bridge COVID and support growth
  • Notable increase in focus by companies in improving their Environmental, Social and Governance (ESG) standings
  • Net positive upgrades to profit forecasts post results with high single digit earnings growth expected for the next few years
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Shane Solly | Posted on Dec 3, 2021
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COP26 in review, implications for investing

  • COP26 concludes with some progress made but not enough.
  • New Zealand updates emissions target and signs methane pledge.
  • International carbon credit trading supported through resolving technical provisions in Article 6 of the Paris Agreement.
  • Implications for corporates to address climate change risks given greater expected regulation and investor scrutiny in aligning with net zero targets and a 1.5-degree world.
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Jorge Waayman | Posted on Nov 22, 2021
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Harbour Outlook: Earnings surprises support equity returns

  • The MSCI All Country World (global shares) Index rose 5.0% in USD in October, lifting the 3-month return to +2.9%. Returns in NZD were more modest, up 1.3% for the month and 0.7% over the past three months.
  • October brought a strong earnings season in the US. At the time of writing, 440 companies in the S&P 500 had reported results with 360 companies (82%) beating earnings estimates, compared to a long-run quarterly average of 66% since 1994.
  • An emerging trend is that companies with pricing power that have been able to weather supply side constraints have been able to significantly grow profits, beating expectations. We think this trend will selectively continue.
  • Bond yields continued to rise through October; the New Zealand 10-year bond yield increased sharply by 0.54% to 2.63%, while the US 10-year bond yield climbed a more modest 0.06% to 1.55%. This contributed to declines for major New Zealand and global bond indices.
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Harbour Team | Posted on Nov 9, 2021
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What to expect from COP26

  • Country level emissions reduction targets expected to take centre stage to ensure a 1.5 degrees scenario is within reach.
  • Carbon trading and ‘leakage’ likely to feature given the adjustment mechanism proposed by the EU.
  • Financing the transition will be an important focus, particularly for developing countries that require support.
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Jorge Waayman | Posted on Oct 28, 2021
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Harbour Outlook: Markets face a wall of worry

  • The MSCI All Country World (global shares) Index fell 4.3% (in USD) in September, though was down a more modest 1.4% over the quarter.
  • The news that one of China’s largest property developers, Evergrande, was facing imminent default caused jitters within the market, with many worried about potential contagion. Evergrande’s troubles came to the forefront following tighter restrictions on property developers’ balance sheets.
  • Broader Chinese economic momentum has continued to stall with Beijing prioritising structural reforms over growth.
  • Bond yields rose over the month, the New Zealand 10-year bond yield increased by 0.27% to 2.09%, while the US 10-year bond yield climbed 0.18% to 1.49%. This contributed to declines for major New Zealand and global bond indices.
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Harbour Team | Posted on Oct 8, 2021
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Is there a COVID-19 endemic equilibrium for investors?

  • At some stage the world may learn to live with COVID-19 and, while that may be hard to believe in the middle of a local lockdown, this pandemic may eventually morph into an endemic.
  • From an investment perspective, we need to accept that this is likely and it will allow markets to continue to swing attention to other risks like climate change, inflation, interest rates, disruption, regulation, innovation and corporate earnings.
  • That path may not be straightforward but two data points are encouraging. First the US and European rate of new COVID-19 infections looks to have peaked and, secondly, by the end of this year close to 80% of the world’s adult population are expected to be fully vaccinated.
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Andrew Bascand, Hamish Pepper | Posted on Sep 23, 2021