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Crystal ball gazing can be seen as a necessary exercise for investment advisers and strategists as it allows them to focus their thoughts, consider various scenarios and evaluate risks and opportunities, Craigs Investment Partners broker Greg Easton says.
Rather than rely too heavily on market predictions, Craigs preferred to consider them as talking points that might encourage some insightful debate and thought.
The predictions
(1) Returns from shares will again beat fixed income and
residential property.
Shares were the best place to invest in 2012, and Craigs
thought they would take first place again this year, Mr
Easton said. Dividend yields would remain much higher than
interest rates, companies were in good financial shape,
earnings were growing and investor sentiment was likely to
move further in favour of shares.
(2) Australian shares will do better than New Zealand
shares.
For the past three years, the New Zealand market has been a
much stronger performer than Australia's. That could turn
around over the coming years. Australia had cut interest
rates aggressively, China was stabilising, Australian shares
looked better value than New Zealand shares and sentiment -
which was at rock bottom - could only go up. In Australia,
Craigs liked companies such as AMP, Spark Infrastructure, ANZ
Bank, Seek, Computershare, BHP and Rio Tinto, he said.
(3) The official cash rate will remain unchanged all
year.
''We can't see any reason for the Reserve Bank to increase
interest rates until sometime in 2014,'' Mr Easton said.
''We might get a bit of growth boost from the Christchurch rebuild but it won't justify any movement in rates, and investors looking for income won't get any reprieve from the current low interest-rate environment.''
While many high-dividend companies had already performed well in the wake of low interest rates, those such as Sky TV, Argosy Property, DNZ Property, Vector and Telecom still looked ''reasonable value'' and should continue to attract attention in 2013.
(4) At least five new companies will list on the
NZX.
With or without state-owned enterprises, activity in terms of
new listings and opportunities should continue to build. The
market was strong, sentiment was high and there was a lot of
cash sitting in low-return bank deposits.
''In 2013, we might have the best year for some time when it comes to new investment opportunities. A key beneficiary of this trend will be the NZX,'' Mr Easton said.
(5) China will recover to a growth rate of 8%.
Chinese economic growth for the September quarter was 7.4%,
having consistently slowed since the first quarter of 2010.
That could well be a turning point and growth in China could
start to re-accelerate in 2013.
(6) Growth shares will do better than high-income
shares.
Over recent years, the safe, defensive, high-yielding shares
had been outstanding performers, Mr Easton said.
''They still look attractive and will hold up well. But we might see a continuing rebound for some of the more cyclical companies such as those in the building sector, those exposed to equity markers or the retailers.''
Under that scenario, the mid-caps and smaller companies might also continue to outperform their larger peers.
(7) The Christchurch rebuild will get properly under
way.
After many delays, there are signs of the rebuild process
gathering some ''decent'' momentum, he said. That should help
economic growth as a whole as well as benefit the
construction sector and stocks like Fletcher Building, Opus
and Steel & Tube.
(8) Apple shares will go back up to $US650
($NZ788).
Having hit a high of $US700 in September, Apple shares fell
25% over the following few months. The company remained an
outstanding growth opportunity, had no debt and was good
value on almost every measure, Mr Easton said.
(9)American house prices will outpace Auckland house
prices.
Auckland house prices were great for property investors last
year, rising more than 10%. The Auckland market still had
strong fundamentals but even the most one-eyed property
investor would concede that valuations were beginning to look
expensive relative to rents and incomes. American houses were
starting to show some strength after many poor years. The
wealth effect that would have on sentiment and the US economy
was significant.
(10) The New Zealand dollar will fall.
''If ever there was a contrary call at the moment it would be
for the New Zealand dollar to weaken or the US dollar to
strengthen.''
Like most economists, Craigs' official view was that the currency would remain above US80c this year, but it was worth raising as a scenario because if it did fall, many investors were poorly positioned, Mr Easton said. After the outstanding performance from the local market in 2012, investors had been driven even further into domestic assets.
The kiwi was strong and no-one should be eager to see it collapse. However, some weakness would help exporters and a better-than-expected US economic rebound would see the US dollar recover.
''If nothing else, we should give some consideration to the possibility of international markets outpacing the local market over the coming year and use our strong currency to add some good-quality global companies,'' he said.
Last year
1: Recession in Europe, while US economy surprises.
Correct
2: No break-up of the eurozone in 2012. Correct
3: No hard landing for China. Correct, but only half a point
as Craigs also predicted it would achieve 8% growth when it
only got into high sevens.
4: Shares have a positive year. Correct
5: Interest rates remain very low. Correct
6: NZ dollar rises against our major trading partners.
Correct
7: Fixed interest does not repeat its 2011 performance.
Correct
8: Barack Obama re-elected US president. Correct
9: Mighty River Power might not be only game in town as
legislative changes might enable Fonterra to introduce share
trading allowing the public to invest. Correct
10: Inflation falls back to low levels. Correct
Links:
[1] http://www.odt.co.nz/files/story/2013/01/greg_easton_ponders_the_year_ahead_photo_by_craig__50e66cf14e.JPG