Stock market investors should be ready to navigate rough seas in 2022
The New Zealand equity market is expected to have a better year in 2022, following a stable performance in 2021, as companies focus on growth after adjusting to the upheaval of the Covid-19 pandemic. But investors will need to be on guard, as the recovery will be patchy.
Central banks around the world are removing economic stimulus as inflation looms, with the Reserve Bank of New Zealand ahead of the curve, but Covid-19 and its variants will continue to dominate, which will have an impact on the supply of labor and goods, and the reopening of economies.
“This will be another year where people have to be on guard, it is not a year to rest and just let things happen – we will have to work again this year to generate returns,” the manager said. of Harbor Asset Management’s portfolio. Shane Solly. “There will be winners and losers. “
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While travel-related businesses like Auckland International Airport stand to benefit from the reopening of borders, some that have exploded during the pandemic like Fisher & Paykel Healthcare may do less well, he says.
“This will be another year where you could have reasonable swings,” says Solly. “This will be another kind of difficult mix of factors that investors have to think about. We think the volatility will be there, but behind it all our companies are actually increasing their profits. “
If the global growth rate is not as aggressive as expected and bond yields are not rising as aggressively, New Zealand’s more defensive market of power producers and other utilities may do the trick, he said.
“It will be a year with a lot of underlying drivers,” says Solly.
As active managers, Harbor will reduce investments to protect capital when they think things are strained or risks are not being rewarded, and will add to investments where they can see upside potential, rather than staying on. touches it as passive investors, Solly said.
“We are completely of the opinion that you can still sail in rough seas, and it will be another rough sea,” he said.
The vast majority of listed companies in the country are well run, generate reasonable cash flow and have balance sheets that aren’t overburdened, he says.
Some, like Air New Zealand, are looking to raise capital from shareholders in the first quarter of the year, and others may be looking to raise funds for mergers and acquisitions, as Ebos did at the end of 2021. Not everyone will need to call on shareholders to raise funds. with companies such as Tourism Holdings issuing shares to finance their acquisition of Apollo.
There could be more M&A activity in 2022, as companies gear up for future growth, which could energize the market, Solly says.
“We don’t commend New Zealand companies enough that have done a great job of positioning themselves to really benefit from their growth during this time,” he said. “We have fairly innovative companies that are starting out slowly. “
Solly expects migration to remain a key issue in the coming year as some companies are constrained by the lack of available staff. Reopening the borders could allow more people to enter, but could also see others leave.
“There is definitely a pressure on profitability in some parts because of this,” he says. “This is something we will need to watch out for in the bottom line of the business.”
Some stock prices can become overly bullish as investors favor quality companies with strong positions, he says.
Environmental, social and governance practices are increasingly important in attracting support from investors, he says.
“Some of the biggest carbon emitters have to start easing up because you will see investors moving money elsewhere. This is one of the things that I think people need to pay more attention to.
“It’s the right thing to do, but it’s actually the right thing to do commercially, too,” he says. “We know these are returns risks for investors. If you don’t face these risks, you will get lower returns.
“Either you will have to pay to offset the carbon or you will not be able to operate, it will be that simple. It is very important for society, but very important for investors as well. “
The economic growth of major trading partners such as China and Australia will also be on the radar of investors, he says.
Solly says companies performed better in the last reporting period up to the end of September as they were able to weather blockages better than expected.
For 2022, he says, “this will be another time where there will be positive, negative, green lights, red lights and a little rocky, but we can navigate it. There is certainly a history of better earnings and that’s what drives the stock markets at the end of the day, it’s about allowing companies to continue to increase their profitability. “