| 2009 will go down in history as one of the most | | | | where it has ended the year. |
| remarkable years on record for markets around the | | | | Latest Indications from the RBNZ are that it will start |
| world, including New Zealand. | | | | increasing the OCR in June next year, although this |
| The year began where 2008 finished, with the world | | | | will depend on the strength of the recovery, and the |
| facing financial Armageddon, but ended with investors | | | | latest GDP growth data released just before |
| enjoying a year of generally reasonable returns, after | | | | Christmas for the September quarter was sluggish |
| such an awful 2008. | | | | with growth of just 0.2%, half the Reserve Bank's |
| Market tensions eased in March and sentiment | | | | own forecast of 0.4%. |
| improved. After hitting a low of 676 points on March | | | | With risks and positives delicately poised, investors |
| 9, a level not seen since 1997, the S&P 500 began to | | | | will be hoping that some of 2009's positive karma will |
| recover strongly, eventually ending the year (with | | | | rub off on 2010. One of the main risks facing |
| one trading day to go as I write this) 67% above | | | | investors is that markets are no longer cheap. Both |
| this low point. | | | | the New Zealand and Australian markets are trading |
| In New Zealand our market followed global markets | | | | on PE ratios above their long-run averages. |
| upwards. Using the NZSE index, which does not | | | | Another risk is that many central banks, including our |
| include dividends, the NZ market hit an 11-year low in | | | | own, have signaled that the period of very low |
| early March, but has since gained 34% from this low. | | | | official cash rates is coming to an end. Traditionally, |
| While markets have recovered strongly, they remain | | | | share and bond markets have struggled in the face |
| far below their 2007 peaks. The New Zealand market | | | | of rising interest rates. |
| needs to deliver a 34% gain to get back to its 2007 | | | | We also believe that the global economic recovery is |
| high point. | | | | fragile and high debt levels still pose a serious threat |
| Much to the frustration of exporters and investors | | | | to the sustainability of the recovery. |
| with overseas investments, the NZ Dollar roared over | | | | Balancing these risks, are a number of positive |
| 2009. Against the US Dollar it gained 50%, rising from | | | | factors that could underpin a continuation of the rally |
| US$0.50 to US$0.75 during the year. | | | | in share prices over 2010, albeit at a more subdued |
| The fortunes of our currency have clearly been tied | | | | pace than witnessed over 2009. First, is the fact that |
| to investor sentiment. Over 2008 during the global | | | | the recovery in the global economy has been much |
| financial crisis, investors evacuated the NZ Dollar in | | | | faster and stronger than most predicted. |
| favour of safe havens like the US Dollar. The Kiwi fell | | | | The strong growth seen in China and in other Asian |
| from a high of US$0.81 to a low of US0.50 over | | | | countries has been remarkable and adds to the |
| 2008. As fortunes turned and investor sentiment | | | | positive picture as a growing Asia may help nullify the |
| improved, so has the NZ Dollar. | | | | impact of lower growth in the United States and |
| Not all of the increase in our currency is simply | | | | Europe. |
| exuberance from bullish overseas investors. Some of | | | | In respect to New Zealand, another factor that |
| the strength in the NZ Dollar is probably deserved | | | | should not be overlooked is the potential for material |
| given our economic fundamentals are actually better | | | | policy changes in areas of tax, government spending |
| placed than those of many of our major trading | | | | and regulation that could be implemented by the |
| partners. Nevertheless, our currency has looked | | | | government over 2010. Such changes have the |
| stretched, and some weakness was seen later in the | | | | potential to enhance productivity in New Zealand and |
| year. | | | | both equity and bond markets could react positively |
| The trend for interest rates over 2009 was upwards. | | | | to any policy improvements in these areas. |
| Government bond yields in the secondary market | | | | Inflation risks are such that over the long-term |
| rose by around 100 basis points over the year. | | | | investment portfolios should have a meaningful |
| The Official Cash Rate (OCR) started the year at | | | | orientation towards growth assets, but with only |
| 5% but was promptly slashed by 1.5% in January by | | | | tepid valuation support, and serious risks still lurking |
| the Reserve Bank, who followed this up with further | | | | across many economies, a considered approach to |
| 0.5% cuts in March and April. The Bank has left this | | | | investing cash is warranted. |
| rate unchanged at 2.5% since this time, and this is | | | | |