Source: Radio New Zealand
Share markets around the world have hit records this week. 123RF
Share markets around the world have hit records this week, undeterred by war, rising interest rates and pressure on fuel supplies.
The S&P500 and Nasdaq have been hovering around all-time highs, the FTSE 100 is not far off its February record, and the Russell 2000 is at a high.
Almost all global sharemarkets are looking exceptionally healthy, given the geopolitical tension – with the notable exception of New Zealand’s.
So what is going on?
Koura founder Rupert Carlyon said markets were having a great time, despite the upheaval happening around the world.
“I think there are a couple of things going on.
“One is the US economy. That continues to be stronger than anticipated. I think there is continued belief that the US economy is strong. There is not any sign of recession in the short term.
Rupert Carlyon, founder of Koura KiwiSaver. Supplied
“That continues to help … over the last four years we seem to be consistently oscillating between is the economy about to take a dive or not. But with the tax refunds that have come out of the US people are expecting actually that we could see another acceleration in the economy.
“The other piece is that we like tech again. We didn’t like tech two or three months ago. The big tech names and the AI names, I think we’re starting to see with Claude and others a massive realisation and recognition of what these tools are going to do and what they can do.
“Microsoft is up 15 percent in the last couple of weeks. We’re just starting to see that come through again … all of a sudden the worst case scenarios around oil and energy aren’t quite coming rue and we’ve got good news around tech in the economy which is driving things higher as well.”
Generate investment specialist Greg Smith said markets in Europe and Asia were doing well, too.
Generate investment specialist Greg Smith. Supplied / Generate
“Equity markets are looking through the current tensions, to a de-escalation and looking through to the broader resilience of the economy. The US earnings season has got off to a pretty good start. There’s still plenty of optimism around the growth that AI and tech-related companies are delivering.”
He said the resilience of equity markets was notably different from what had been seen in commodity markets, particularly oil. “Oil has had huge volatility and has been up as much as 80 percent. It’s been down, it’s been up, it’s been down … it’s been up again with the latest deadline approaching.”
He said equity markets seemed to have a glass half full approach while bond markets were taking a half-empty stance. “They’re more focused on the long-term inflationary outcomes.”
He said things could change if the conflict in the Middle East dragged on.
“Equity markets will probably reprice it more if the conflict is a longer lasting one … but overall the equity market is pretty resilient.”
Mike Taylor, founder of Pie Funds, said he thought market participants put a lot on hedging through March.
Mike Taylor, founder of Pie Funds. Supplied / Pie Funds
“Then as oil prices didn’t move to the worst case scenario and the S&P500 rallied, those shorts had to be covered, which has caused the market to rally like a home-sick angel.
“I agree that it does seem odd give that inflation is higher and growth is lower as a result of the war, but you could have said the same after the tariffs.”
But what about NZ?
New Zealand is a notable underperformer.
Carlyon said the country’s economy was highly leveraged to interest rates.
“Whether that be because they’ve got the dividends … the utilities are kind of largely there for dividends, and then we’ve got the property companies all there for the dividends. We’ve got a very weak property market which also relates to it.
“The third thing impacting the New Zealand market right now is there is a lot of nervousness around the gentailers and what happens there. They make up a big chunk of our market.
“If you think about what’s working off shore at the moment, it’s technology, defence and energy. The only thing we’ve got out of those three is clean energy. Bu that’s actually domestic electricity and that’s got a whole lot of regulatory risk floating around it.
“There is probably a strong argument that the politicians cannot let electricity prices get much higher before they are going to have to intervene so that … caps the upside for those gentailers.”
Smith agreed New Zealand had not yet caught up. “We’re around 6 percent from the record highs we saw in January.
“We were quite different economically. We’re running below par growth and were just coming into a mini recovery as the conflict hit. We haven’t [got] the same tech exposure in our markets and we’re a net importer of oi l… There’s economic headwinds there.
“I think if our economy can get going, if we see a relatively short war and if the conflict sort of comes to its conclusion in the coming weeks, then maybe New Zealand can get by without rate hikes. I think that will help the picture a lot.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
