Mark Lister, 4 November 2021

World shares have rallied more than 15 per cent so far in 2021, led by the US and Europe which are both up more than 20 per cent each. The UK and Australia aren’t far behind, both having registered double digit gains.

We’ve been left well and truly in the dust, with our market only just breaking even this year. If you strip out dividends that have been paid, New Zealand shares are down by a couple of per cent.

Heavyweight a2 Milk has almost halved in 2021, but stripping it out would only see our market about three per cent higher, so we can’t blame it all on one stock.

There are a whole range of reasons we’re behind the pack, but looking at the top performers overseas is a good place to start.

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The two strongest sectors in the US this year have been energy and financials, which have rocketed ahead by 52 per cent and 36 per cent respectively.

The 75 per cent rally in oil prices has boosted the energy sector, while rising interest rates have been very good for the banks.

Not only that, but these two sectors suffered in 2020 during the worst of the pandemic. Having started the year still smarting from that sell-off, it left more room for a rebound.

Technology has also been another big winner in the US, with the strong performance of 2020 carrying on unabated in 2021.

While the tech giants aren’t benefitting from the economic recovery the way others might, trends like flexible working, e-commerce and digitalisation have supercharged the growth profile of these businesses.

All put together, these sectors represent more than half of the US sharemarket, whereas the NZX has little in the way of banking, energy or technology companies.

We are instead dominated by listed property, healthcare, the electricity companies, and infrastructure-type businesses.

These are all great investments when markets are nervous, or when investors are looking for safer, more predictable returns.

That’s why we held up better than most in early 2020, and why we will again when the next downturn inevitably arrives.

However, it means we fall behind when the world economy is in recovery mode, when a broad reopening is taking place, and when investors are looking for opportunities to benefit from this resurgence in activity.

The local market is also more sensitive to rising interest rates.

Our modest growth, steady dividend payers become a little less attractive as fixed income and term deposit rates increase, and investors start to value those types of companies more cautiously.

The relentless fall in interest rates over the past several years has given New Zealand shares a tailwind, but as that reverses it becomes a headwind.

What’s more, our central bank has been leading the charge when it comes to unwinding the post-pandemic stimulus.

Unless we get some sort of miracle turnaround between now and Christmas, the local market is on track for its worst annual performance since 2011 (when the NZX 50 fell one per cent).

That said, I think we should cut the local sharemarket some slack.

We’re going through a soft patch, but let’s not forget we’ve had a pretty good run. Over the past decade, New Zealand shares have outpaced the rest of the world in seven out of those ten years. Not bad at all.

The NZX is littered with great companies, both big and small, that are set to be very rewarding investments over the longer-term.

It’s just that 2021 wasn’t our year.