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Speaker 1: This is the first of two episodes about what investors

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Speaker 1: need to know in twenty twenty six, with a focus

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Speaker 1: on share markets. Stay tuned for part two. Curta and

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Speaker 1: Welcome to the first episode of Shared Lunch for twenty

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Speaker 1: twenty six, brought to you by Shesi's. I'm Helen Madison,

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Speaker 1: and today we're looking at what investors need to know

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Speaker 1: for twenty twenty six. We're talking the economy, we're talking

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Speaker 1: markets and some of those burning questions like what's happening

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Speaker 1: to house prices. For some expert opinion and some predictions.

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Speaker 1: I'm joined by Jared Kerr from kwibank and Marklister from Craig's.

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Speaker 1: Before we get started, here's some important information.

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Speaker 2: Investing involves a risk you might lose the money you

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Speaker 2: start with. We recommend talking to a licensed financial advisor.

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Speaker 2: We also recommend reading product disclosure documents before deciding to invest.

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Speaker 2: Everything you're about to see and here is current at

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Speaker 2: the time of recording.

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Speaker 1: Welcome Mark and welcome Jared. Happy New year for having us. Now,

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Speaker 1: it's been quite the start to twenty twenty six. We're

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Speaker 1: not even a month into it. And if you look

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Speaker 1: what's happening in terms of mister Trump, Iran, Venezuela, Greenland,

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Speaker 1: and even the independence of the Federal Reserve, which is

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Speaker 1: the central bank in the US. Who would know that

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Speaker 1: would have such things happening all at once. So I think, Mark,

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Speaker 1: let's start with the US markets. Shuesis investors love the US,

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Speaker 1: but it was quite interesting to me that actually last year,

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Speaker 1: although they were going gangbusters, they weren't the markets that

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Speaker 1: did the best. It was Japan and Europe.

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Speaker 3: So go figure, Yeah, that's right. Last year really interesting.

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Speaker 3: And if you take those big five sheer market regions

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Speaker 3: across the world, you've got the US, You've got Europe,

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Speaker 3: you've got the UK, Japan, and emerging markets which includes China.

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Speaker 3: The US was actually last out of all of those five,

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Speaker 3: last place. And then you think about the mag seven.

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Speaker 3: You know, all of those tech stocks that we know

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Speaker 3: and love. Five out of the Magnificent seven underperformed the

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Speaker 3: S and P five hundred. So there's a lot of

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Speaker 3: narratives out there in the market. The US has been

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Speaker 3: the strongest market. It's been all the tech stocks, all

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Speaker 3: the mag seven that aren't entirely true. So really interesting,

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Speaker 3: isn't it. The US still did exceptionally. Well, it was

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Speaker 3: up sixteen seventeen percent last year, so a cracking return,

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Speaker 3: but there was more money to be made in some

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Speaker 3: of those other markets.

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Speaker 1: So does that mean we might want to pivot or

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Speaker 1: have more diversification because the concentration, For example, in the

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Speaker 1: SMP five hundred, I think ten of the biggest stocks

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Speaker 1: are mainly tech, mainly aligned to AI, and they are

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Speaker 1: thirty six percent of the bores. So is it time

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Speaker 1: to sort of reconfigure and think not like we used to?

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Speaker 4: Oh?

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Speaker 3: Look, yes and no. I think those top ten stocks

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Speaker 3: and it's all the household names. I think they're north

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Speaker 3: of forty percent of the S and P five hundred.

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Speaker 3: Concentration isn't something new, you know, the last thirty years,

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Speaker 3: I think the top ten have been on average twenty

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Speaker 3: to thirty percent, which is chunky numbers. But forty percent

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Speaker 3: are not higher. Again, so look, is that concerning? Oh yeah,

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Speaker 3: I think it is to a degree, but it's not

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Speaker 3: completely new. You know. Share markets are interesting. You look

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Speaker 3: back through the history of share markets and most of

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Speaker 3: the returns tend to be driven by a very small

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Speaker 3: group of stocks. There's a whole lot of stocks that

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Speaker 3: do either badly or average, and there's a small group

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Speaker 3: that do very well and that's where you get your returns.

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Speaker 3: So I think you do have to I don't think

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Speaker 3: we want to give up on those AI stocks, those

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Speaker 3: tech stocks. We just want to have an awareness that

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Speaker 3: they're very big, they're very dominant. Look if that bothers you,

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Speaker 3: if that makes you nervous, then there is a world

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Speaker 3: outside of those sectors and stocks, and outside of the

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Speaker 3: US is about sixty five percent of global share market indices.

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Speaker 3: So it's the big kahuna. It's the world's biggest economy,

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Speaker 3: the biggest share market, biggest bond market, and that is

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Speaker 3: where the world's best companies live. So you don't want

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Speaker 3: to give up on it. But I think the message

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Speaker 3: is more, don't forget that there are regions outside the US.

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Speaker 3: There are a lot of interesting opportunities in Japan, in

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Speaker 3: Europe and other parts of the world. So it's not

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Speaker 3: a case of one or the other. I would say

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Speaker 3: just be well spread and maybe hedge your bets if

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Speaker 3: you're starting to get a little nervous about that level

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Speaker 3: of concentration.

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Speaker 1: Mark. We won't labor too much on this because I

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Speaker 1: think everyone's stick of it. But the AI bubble that

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Speaker 1: was talked about Adam for Nam last year, do you

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Speaker 1: have any views on where that could go this year?

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Speaker 3: Look, I personally don't think it's a bubble. You know

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Speaker 3: a lot of people compare it to what we saw

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Speaker 3: in the late nineties around the turn of the century,

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Speaker 3: and there are similarities, but there's also a lot of

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Speaker 3: key differences the companies you've got now, at least the

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Speaker 3: big ones, because there are you know, there are unprofitable

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Speaker 3: tech companies that are very highly valua. But when you

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Speaker 3: look at the you know, whether it's the Microsoft's or

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Speaker 3: the videos or or the Apples or the Amazons, these

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Speaker 3: are fantastic businesses that are very dominant, very profitable, with

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Speaker 3: very strong margins, and they have become essential parts of

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Speaker 3: our life. You know, they're almost sort of infrastructure in

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Speaker 3: a way, and the valuations are expensive, but they're not

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Speaker 3: nearly anywhere near where things got to in that period

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Speaker 3: twenty five years ago. So for me, could it be

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Speaker 3: a little bit overheated, Yeah, possibly, But I don't think

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Speaker 3: we're in bubble territory. And while there's still such strong

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Speaker 3: earnings growth coming through, you know, I still think there's

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Speaker 3: a case for the US market performing well. But again,

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Speaker 3: if people are worried about that, then just be well diversified, Jared.

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Speaker 1: If we think about the geopolitics and where New Zealand stands,

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Speaker 1: it would appear at the moment with Europe and what's

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Speaker 1: happening with Greenland that mister Trump not has a big stick,

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Speaker 1: but he has a big economy and he has lots

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Speaker 1: of power, and everybody's sort of, you know, tiptoeing around him.

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Speaker 1: Is there anything that for New Zealand that we need

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Speaker 1: to be aware of or does the reverberations come this

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Speaker 1: far down under? Oh?

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Speaker 2: They do.

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Speaker 4: If something you know, big enough and outrageous enough does

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Speaker 4: actually affect global markets, then then it ripples its way

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Speaker 4: through to New Zealand quite quickly. But we're not there

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Speaker 4: at this point. You know, a lot of threats, you know.

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Speaker 4: The tariffs of last year I think was a classic

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Speaker 4: example of something that really threatened US, and most economists

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Speaker 4: globally like wrote off a whole lot of expected growth,

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Speaker 4: only to then put it back in once the tariff

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Speaker 4: didn't turn out to be quite as bad as originally feared.

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Speaker 4: And you know, even having tariffs removed from US on

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Speaker 4: the likes of beef and fruit and a few other things,

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Speaker 4: you know, Right, So the exporters that I spoke to

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Speaker 4: over that period, none of them with that concern because

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Speaker 4: they were diversifying more into Asia and Europe, and those

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Speaker 4: that had good export market into the United States were

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Speaker 4: saying that that was their most profitable market. So there

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Speaker 4: was room to wiggle room on that tariff anyway. So

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Speaker 4: that was the big one. And now everything else that

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Speaker 4: you mention is just more and more Trump being Trump.

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Speaker 4: And I think it's the way I would say it

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Speaker 4: to clients. It's it's a watch. It's a must watch,

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Speaker 4: but it's not a react. It's watch and you know,

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Speaker 4: don't react. And if financial markets are strolling through this,

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Speaker 4: then I'm not immediately concerned at all. And what I'm

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Speaker 4: actually excited about is that, you know, we've now got

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Speaker 4: what I think are the right conditions for a proper

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Speaker 4: recovery this year, not the one that had last year,

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Speaker 4: which kind of stalled and we sort of choked and

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Speaker 4: spluttered and struggled to get up off the ground. I

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Speaker 4: think we're on our knees and we're about to start jogging.

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Speaker 3: I think markets were able to write some of that

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Speaker 3: stuff off as noise because the US and other parts

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Speaker 3: of the world are still ticking over nicely in an

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Speaker 3: economic sense. When the fundamentals still look okay, it might

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Speaker 3: be a different story, whether it's the tariffs, where it's

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Speaker 3: some of the other worrying things that we're seeing. If

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Speaker 3: you were getting a real drop off in activity or

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Speaker 3: sort of any recessionary alarm bells, then it might be different,

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Speaker 3: mightn't it.

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Speaker 4: Yeah, absolutely, But we just didn't get that, Thank God,

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Speaker 4: Like I said, the IMF, the World Bank, all these

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Speaker 4: very serious forecasters said, right, the tariffs are coming through.

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Speaker 4: We're slashing our global trade volume forecasts. And as a

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Speaker 4: little old, as a tiny open economy like New Zealand,

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Speaker 4: to see all that happening, you know, really did scare

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Speaker 4: us there for a minute, but only a minute, and

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Speaker 4: we sort of we've thought our way through it, and

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Speaker 4: now those forecasts have been revised actually higher than what

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Speaker 4: they were.

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Speaker 1: One thing that does scramble markets a little bit though,

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Speaker 1: is inflation and rate cuts. And you know, obviously every

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Speaker 1: time the feed to reserve drops or hikes where you

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Speaker 1: feel it down here kind of thing, you know, they've

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Speaker 1: sneezed and we feel it. What about back here in

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Speaker 1: New Zealand though in terms of rates, I mean we

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Speaker 1: are in a low ish interest rate environment. That rebound

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Speaker 1: or I think recovery is probably a more apt word.

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Speaker 1: What is in our toolbox to make that happen?

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Speaker 4: Well, there's a lot on the toolbox, but the main

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Speaker 4: tools are very blunt one and that's the interest rate

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Speaker 4: that you were talking about. The Reserve Bank has used

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Speaker 4: it with a very heavy hand in recent years. They

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Speaker 4: slashed it to near zero during COVID they hiked it,

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Speaker 4: you know, into the mid fives. Both moves very aggressive.

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Speaker 4: Both news had big impacts on the economy. We fell

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Speaker 4: into a recession and we've been in a very awkward

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Speaker 4: period for the last few years. We haven't really recovered

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Speaker 4: and that's because the cash rate hasn't been where it

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Speaker 4: needs to be. They have only just cut the cash

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Speaker 4: rate below a neutral rate, so we had it at

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Speaker 4: a restrictive level. You've got your foot on the brake.

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Speaker 4: They cut it down to three. That's neutral, right, You've

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Speaker 4: basically just put the car in neutral. You're not going anywhere.

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Speaker 4: Only recently have they gone down to two and a quarter.

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Speaker 4: So only recently we've just seen a slight tap on

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Speaker 4: the accelerator. So yes, confidence is lifted as as these

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Speaker 4: rates have fallen to levels that are stilitary. And what

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Speaker 4: we need to see is that confidence turning into actual activity.

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Speaker 4: And we've seen signs of that in our spending data.

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Speaker 4: We've seen it in the ends that I business. You know,

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Speaker 4: it's coming through. And we're a lot more confident with

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Speaker 4: a cash rate that's in stimlatory territory than a cash

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Speaker 4: rate that's a neutral or above.

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Speaker 1: Because some of the only green shoots last year where

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Speaker 1: the rural economy was done quite well, but that's tape

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Speaker 1: it off somewhat. But are you saying that this is

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Speaker 1: a lot broader this recovery.

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Speaker 4: We're hoping it becomes a lot broader. So the one

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Speaker 4: thing I like the best about that NZ that io

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Speaker 4: and with the lift and manufacturing. That manufacturing sector's key

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Speaker 4: for us, and it's sensitive to the Ossie Kiwi currency cross,

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Speaker 4: which has gone in our favor again. So yes, we

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Speaker 4: had a farming and growers market there for a while.

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Speaker 4: You saw that in different regions, particularly the South Island.

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Speaker 4: You know, larger farms, less debt than in the North Island.

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Speaker 4: So that terms of trade boost largest we've ever seen

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Speaker 4: in this country. Ten bucks payout for dairy powder. Not bad,

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Speaker 4: that was great. Now I think we're seeing more of

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Speaker 4: that money being put in because what we noticed is

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Speaker 4: that a couple of the large banks actually pulled back

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Speaker 4: on their lending into agriculture, so the farmers are actually

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Speaker 4: forced to pay down debt, and a lot of them

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Speaker 4: wanted to pay down debt, So you might be getting

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Speaker 4: a high payout, but that's not necessarily feeding into the

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Speaker 4: economy if you're running down debt. I think we're at

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Speaker 4: a point where they've done that and we're starting to

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Speaker 4: see more feeding through and with these rate cuts to

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Speaker 4: levels that they are now, if we see that pick

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Speaker 4: up and retailing more consumer then that's a lot more

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Speaker 4: broad based.

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Speaker 3: I think you're going to get a really good read

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Speaker 3: on that and more through this upcoming reporting season in

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Speaker 3: New Zealand because a lot of indicators that we see,

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Speaker 3: not the QSBO that's a bit more up to date,

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Speaker 3: but a lot of economic indicators tend to be backward looking,

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Speaker 3: don't be. But right on our doorstep is the feb

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Speaker 3: reporting season. Second half fair you know, whether it's the

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Speaker 3: freightways or the port companies or whoever, all of these

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Speaker 3: management teams and CEOs are going to tell you how

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Speaker 3: are things for us today and what do things look like,

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Speaker 3: you know, in the immediate future. And with a bit

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Speaker 3: of lark on with Jared, I think there is a

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Speaker 3: broader recovery story coming through and hopefully some of those

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Speaker 3: outlook commentaries will give us a bit more evidence of that.

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Speaker 1: Yeah, because of the last two earning seasons we have

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Speaker 1: had some companies had some pretty dire results, haven't they

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Speaker 1: And it was looking quite bleak the forecast.

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Speaker 3: I think more than two it's probably been the last

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Speaker 3: six six monthly reporting seasons. Yeah, and if the CEOs

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Speaker 3: of these big companies that have a lot of economic

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Speaker 3: touch points, if they can't sort of see light at

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Speaker 3: the end of the tunnel, it still looks cloudy. It's

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Speaker 3: pretty tough to get confidence. But you know, think, I

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Speaker 3: think we might be almost there this time around. And

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Speaker 3: I'm hopeful that, you know, they'll be talking about the

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Speaker 3: results from the second half of last year, but when

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Speaker 3: they talk about this is how the last four to

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Speaker 3: six weeks, you know, the early part of twenty twenty six,

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Speaker 3: I'm hopeful that we'll have seen an uplifting activity.

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Speaker 1: So in that with that regard, then what sectors do

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Speaker 1: you think have some promise, Say, if we're looking at

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Speaker 1: the end X and the AX.

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Speaker 3: Well, I still think those interest rates sensitive companies will

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Speaker 3: do well. You know, like Jared said, you know, we

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Speaker 3: had that high OCR five and a half cent for

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Speaker 3: a long time. Now we're down at two and a quarter,

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Speaker 3: so it's not as low as it was pre COVID,

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Speaker 3: but it's still much lower than we've seen in a

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Speaker 3: long time. And TD rates have been you know, close

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Speaker 3: to cut in half. So I think there's there's definitely

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Speaker 3: going to be increasing interest from investors. And you know,

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Speaker 3: whether it's the utilities companies or some of the infrastructure companies,

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Speaker 3: listed property which was in the dog box for years

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Speaker 3: and they had a cracking year last year. Commercial propertly

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Speaker 3: looking a lot better, so some of those sectors are

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Speaker 3: probably looking a little bit more enticing to investors. So

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Speaker 3: I still think that that theme has got legs. As

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Speaker 3: you sort of move through the year, and as people

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Speaker 3: have more confidence about things like manufacturing other parts of

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Speaker 3: the economy, you know, maybe you will see some of

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Speaker 3: those more cyclical economically sensitive parts of the market perform

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Speaker 3: a little bit better.

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Speaker 1: And ACEX I mean traditionally for Kiwi anyway, being banks

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Speaker 1: and minors. Is there emerging markets or merging technologies I mean,

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Speaker 1: and more mid cap type opportunities rather than those great

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Speaker 1: big you know, HP or wherever it might be.

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Speaker 3: If I'm honest, I struggle a little bit with Australia,

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Speaker 3: you know, the US and Europe. That's where all of

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Speaker 3: the action. Those are the biggest best parts of the

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Speaker 3: world too. New Zealand is teeny tiny, so the textbook

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Speaker 3: would sort of say, you know, you don't need to

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Speaker 3: invest in New Zealand, but because you get the imputation

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Speaker 3: credits here as a New Zealand investor, there's quite a

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Speaker 3: significant tax advantage that we get, so that that sort

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Speaker 3: of counters that argument. So there's a valid tax reason

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Speaker 3: to invest locally because we get that much better tax treatment.

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Speaker 3: OZ is kind of a no man's land because we

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Speaker 3: can't use the Frankin credits. And are the companies there

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Speaker 3: really better than what you'll find in the United States.

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Speaker 3: I'm not sure. Interesting resources though that that's probably where

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Speaker 3: you know, I do see value and you know, personally

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Speaker 3: thinking about inflation, thinking about.

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Speaker 2: All of that.

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Speaker 3: You know, I'm in the camp where having some commodity exposure,

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Speaker 3: some real assets, you know, tangible natural resources is quite

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Speaker 3: sensible to have as part of you know, if anything,

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Speaker 3: your alternative assets. But using the Aussie minus is a

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Speaker 3: good way to do it because commodities do tend to

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Speaker 3: perform well when you've got that high inflation backdrop, and

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Speaker 3: just in case we're all wrong about inflation being under control,

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Speaker 3: just in case there is another shock and other scare,

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Speaker 3: I think there's a valid case for that that sector.

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Speaker 3: So that interests me about Ozzie. Small caps. Lots of

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Speaker 3: great small caps mid caps in Australia, but it has

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Speaker 3: been a mine field for people choosing them. So you know,

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Speaker 3: I think I think wise to maybe use a credible

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Speaker 3: fund manager who's investing in small caps mid caps over

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Speaker 3: there anywhere's a track record, because it's tough to do

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Speaker 3: on your own.

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Speaker 1: The one that has been interesting too is precious metals.

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Speaker 1: I mean gold has had an outstanding year. I think

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Speaker 1: it's sixty percent last year. We haven't seen that since

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Speaker 1: it's nineteen seventy nine or that. I know you've you've

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Speaker 1: talked about it. But Mark and I think silver is

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Speaker 1: another one.

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Speaker 3: Yes, silver was up one hundred and fifty percent last year.

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Speaker 3: And I got a telling off from a client today

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Speaker 3: because they saw something I wrote on LinkedIn where I

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Speaker 3: talked about, you know, everything, what it had done last year.

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Speaker 3: So our gold's done sixty five percent, Well you missed silver,

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Speaker 3: it's done one hundred and fifty percent. Yep. Precious meat

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Speaker 3: has been fantastic, both of those highest yes, since nineteen

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Speaker 3: seventy nine. Look, you can sort of see why. You know,

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Speaker 3: we talked about some of the geopolitical risks and issues.

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Speaker 3: The US dollar has been weak. That's a positive for

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Speaker 3: precious metals. Everyone's worried about US debt, where it goes spending,

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Speaker 3: Everyone's worried about sort of, you know, it's a laundry

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Speaker 3: list of things to worry about. So I think there's

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Speaker 3: a case for having a small allocation to precious metals,

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Speaker 3: gold or whatever.

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Speaker 1: You know.

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Speaker 3: I think you put it in your alternative assets sort

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Speaker 3: of part of your portfolio. Don't go overboard. Gold can

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Speaker 3: be super volatile, so you know, it's had a great

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Speaker 3: run lately.

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Speaker 1: Interesting it.

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Speaker 3: You know, it won't necessarily continue, not at that same pace.

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Speaker 3: But there is a case for having those. I've got

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Speaker 3: a little bit of gold, and I keep it to

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Speaker 3: sort of two or three percent of my portfolio, and

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Speaker 3: I think of it as an insurance policy rather than investment.

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Speaker 3: So I've sort of got it there. I hope it

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Speaker 3: doesn't go well, because when it goes well, it usually

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Speaker 3: means there's trouble somewhere else. The way I sort of

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Speaker 3: think about it, you know, it's it's not a must own,

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Speaker 3: but it can it can sort of help you during

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Speaker 3: during these periods.

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Speaker 1: M