An excellent year for investors…
2024 Market Highlights
New Zealand: The New Zealand economy demonstrated resilience this year, driven by:
Interest Rates: The Reserve Bank of New Zealand (RBNZ) accelerated the pace of interest rate reductions by reducing the Official Cash Rate (OCR) by 50 basis points to 4.75% in October and a drop again in November to 4.25% - as inflation returns to 1 to 3 percent target band. Economic activity in New Zealand remains subdued and output continues to be below its potential. With excess productive capacity in the economy, inflation pressures have eased. Domestic price and wage setting behaviours are becoming consistent with inflation remaining near the target midpoint. The price of imports has fallen, also contributing to lower headline inflation.
NZX: Our local sharemarket has turned a corner, after struggling over the past three years. The NZX50 index has gained 8.5% so far in 2024, which compares to a 20 year average of 7.4% per annum.
Housing Market: Housing values are on track to have the flattest calendar year in more than a decade, despite a smidgen of growth occurring in November. That was up 0.3% compared to the end of October, and was first increase in average value since April. However, the average value is still down 0.7% compared to November last year, and down 14.6% compared to the market's peak just over three years ago. The interest rate reduction will help but there is an oversupply of properties for sale currently so we will not see price pressure assist the increase.
NZ Economy: Economic activity in New Zealand remains subdued and output continues to be below its potential. With excess productive capacity in the economy, inflation pressures have eased. Domestic price and wage setting behaviours are becoming consistent with inflation remaining near the target midpoint. The price of imports has fallen, also contributing to lower headline inflation.
Economic growth is expected to recover during 2025, as lower interest rates encourage investment and other spending. Employment growth is expected to remain weak until mid-2025 and, for some, financial stress will take time to ease.
Global markets: World shares are up 20.8% with major indicies in the US, UK, Europe, Japan, Australia and emerging markets all moving higher this year. The gain is more than double the 20-year average of 8.2%. However Global sharemarkets fell 0.9% in October in the lead up to the US presidential election and after mixed US earnings announcements, particularly amongst the mega cap US technology companies. For example, although Microsoft and Meta Platforms beat analysts’ earnings forecasts, the firms’ guidance for more AI spending has investors worried over the outcomes of these large investments in the short term. I
US Election: US sharemarkets have reacted positively to a Trump win, partly because there was no uncertainty about the result which had been feared given polls prior to the election had indicated the outcome was too close to call, and that Trump’s policies are considered pro-growth. The US dollar has also been strong on the back of the election outcome. Conversely, US longer-term interest rates have moved higher, in anticipated of stronger economic growth, higher inflation, and larger US government deficits and debt levels. Despite very close polls going into election day, it was a decisive Republican sweep. Donald Trump won both the electoral college and the popular vote and, while counting is continuing, the Republicans have regained a majority in the Senate and have retained their majority in the House of Representatives.
Trump campaigned on a platform of extending personal income tax cuts, lower corporate taxes, deregulation, trade tariffs, immigration controls, and re-assessing America’s role in global affairs. The market focus is now on figuring out how much of Trump’s agenda, as outlined on the campaign trail, will be put into effect.
The US election result impacts the outlook for global bonds. In addition, the US Federal Reserve (Fed) has become more cautious on the outlook for reducing interest rates. The ongoing strength of the US economy likely means the Fed are not in a hurry to cut interest rates. The Bank of England has also struck a more cautious tone on the pace of further interest rate reductions.
What we will be watching as we head into 2025
US policy changes will be monitored following the recent US election. Donald Trump will return to the White House in January with a pro-growth economic agenda centred around the disregulation and protecting American businesses.
China cannot be ignored, as its government has announced significant stimulus measures to help the ailing property sector, restore consumer confidence, stabilise asset prices, and improve economic growth.
Bank of Japan continuing to tighten monetary policy – raising rates, leads to a higher yen and further unwinding of carry trade.
The current investment case for investing into global listed infrastructure is strong. The sector will likely continue to benefit from the growth of generative artificial intelligence, as well as from increased onshoring and nearshoring of manufacturing operations by U.S.-based multinational companies looking to bring their supply chains closer to home. Beneficiaries from these trends include Data centres and electric power-generating developers and asset owners. Annual energy consumption by U.S. data centres is expected to more than double by 2030 (according to McKinsey). This surge in demand will require substantial investment in new power-generating capacity globally. Also, electric distribution utilities will benefit from an expanding customer base and growing demand.