2011 was a year where not much happened all round – the NZ stockmarket (main index), housing market, and currency were virtually flat year-on-year. We have entered the age of deleveraging and also a huge population bulge will be retiring which will start to have a drag on house prices and perhaps even stocks in the coming years. There are huge opposing forces and uncertainties in the global enivornment, especially surrouding the Euro area. With the developed nations mired in debt, it is going to be years before things return to the ‘good old days’ of ever rising asset prices.
OK, so the new year is a time where everyone loves to make predictions about the coming year, if anything it’s fun to look back on a year later. This is my assessment of the most likely outcomes in 2012.
The New Zealand dollar
The US economy is making a comeback so the NZD/USD should remain relatively unchanged for 2012, or at least within the normal range of volatility. I expect a trading range of 75c to 85c. Against the Euro the Kiwi dollar should do very well this year, provided that there is not some catastrophic event which causes a flight to risk (and therefore risk assets such as the Kiwi dollar to be sold off). As I write this the NZD/EUR has hit a new high of over 62c. I expect a trading range of 58c – 70c for the NZD/EUR with the bias to the upside. For the NZD/GBP I can see the Kiwi outperforming, but not as much as against the Euro, I can see a trading range of 49p to 55p for the NZD/GBP.
New Zealand House Prices
I expect there to be a continuation of the slow growth of house prices in Auckland, in the order of 3 or 4% in popular suburbs (in line with the general inflation level). For the rest of New Zealand I can see there being more modest growth, and even falls in some coastal or rural towns. The housing market is underpinned by very low interest rates, and relatively easy credit conditions, combined with low unemployment levels meaning fewer forced sales. What is stopping the market from running away is low or negative net migration, and a shift in consumer behaviour towards deleveraging. Also – the baby boomer’s are reaching retirement age so we are going to start seeing demographic headwinds turn against the NZ housing market over the next 10-20 years.
A huge swathe of the population will be retiring and that will mean people will downsize, or sell holiday houses as they elect to use the cash tied up in their houses for world travel or to help pay for medical expenses during their retirement. This will mean continued downwards pressure on the housing market for years to come. Overall there are opposing forces at work – i.e. easy credit vs demographic headwinds. It takes a number of factors to come together to produce a property price boom and I do not see any of these factors coninciding for many years to come. The property ‘gravy train’ is over for the forseeable future at least.
The stockmarket
Again I believe we are in a tradtional pattern of trading, which means buy in fall (Northern Hemisphere fall that is) and “go away in May”. So I would say the stockmarket will have a modest uptrend until about April or May, and then a correction for June, July August, with a rally from September or October onwards. I would be very surprised if the stockmarket ends the year significantly up or down on where it started. After last year’s modest year-on-year decline, I am predicting this year will see the stockmarket gain about 3% from where it began on the 1st January. There are simply too many global headwinds in terms of high debt levels in the developed world to allow any sort of major recovery to get underway.
Strategies
The safest strategy in this enviornment is to pay down debt and find ways to save money, by reducing expenditure on unneccessary items. I have a few stocks with good dividends, but I would be a very cautious buyer of stocks, only have a handful and nothing you cannot afford to lose!
