There’s been a raft of bad news from locally listed companies over the past several weeks, with more than a dozen either downgrading earnings guidance or providing negative trading updates.
This hasn’t been limited to the smaller end of town either, with at least ten NZX 50 constituents in the headlines for the wrong reasons too.
Businesses are clearly feeling the brunt of weaker activity, and those impacted most are at the more economically sensitive end of the spectrum.
Tourism Holdings, The Warehouse and Michael Hill have been hurt by softer consumer spending, as have Air New Zealand and Sky City.
A challenging construction backdrop has made life difficult for Fletcher Building and Metro Glass, while a sluggish housing market is one of the things weighing on retirement village operators Ryman, Arvida and Oceania.
The primary sector hasn’t been immune either, with a disappointing grape harvest hurting winemaker Delegat and a weak Chinese economy causing problems for Comvita.
Dairy manufacturer Synlait has been the worst performer on the NZX, although many of its issues are company-specific rather than a function of the economic environment.
However, it hasn’t been all bad and some parts of the market have proved much more resilient.
The top ten companies (by index weighting) make up almost 70 per cent of the NZX 50, and seven of these are up this year.
Market heavyweight Fisher & Paykel Healthcare has led the way with a gain of more than 25 per cent, while Infratil, Meridian Energy and Contact Energy have all posted double-digit increases.
The top performer is a2 Milk, which is up 65 per cent in 2024. While at a three-year high, the share price is still well below its glory days of 2020.
Outside the top ten, Gentrack, Vista Group and Channel Infrastructure (formerly known as NZ Refining) have performed very strongly too.
Despite two thirds of the companies in the NZX 50 index being down this year, the index has managed to eke out a small gain.
It’s still lagging the rest of the world, mind you, and by some margin. World shares are up 20 per cent in the past 12 months, while the NZX 50 is flat.
We’ve seen sharemarkets in the US, Europe, Australia and the UK hit new record highs in recent months, while the NZX 50 remains 13 per cent below its January 2021 peak.
If you strip our dividends (which our index includes, in contrast to most others), New Zealand share prices are languishing more than 20 per cent below those highs.
Like the domestic economy, our sharemarket is struggling against the backdrop of high inflation and tighter monetary policy.
The NZX is dominated by sectors like utilities, infrastructure and real estate, which tend to perform best when interest rates are stable or falling, rather than headed higher.
These high weightings to large, stable businesses mean the NZX 50 doesn’t mirror the economy particularly well, and it also makes the string of downbeat commentaries quite telling.
If large companies are doing it tough, many smaller ones almost certainly are.
The next batch of earnings releases across the NZX will come in August, covering the six months to the end of June.
That’ll be too early to observe a turnaround, which means outlook commentaries will be crucial for the path of the market.
When it comes to inflation and interest rates, this bad news is good news, to an extent.
Slumping activity and a worsening labour market could see inflation slow more quickly than expected.
This might open the door to OCR cuts within six months, rather than sometime in 2025, which would put the local market on a sounder footing.
New Zealand shares haven’t been the place to be in recent times, but in the decade leading up to the COVID-19 outbreak, they outpaced their global counterparts in seven out of ten years.
Returns over the past 20 years have also been on a par with international markets, despite a stagnant last couple of years.
Let’s hope a brighter period is on the horizon, and that after so many negative updates, a lot of the gloom is already in the price and opportunities are starting to emerge.
Market Insights enewsletter
Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.
Mark Lister
Investment Director
Market Insights enewsletter
Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.