PAUL MCBETH: The stiff upper lip of the NZX50

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. He’s owned Vista Group International shares, Kiwi Property Group shares, Stride Property’s stapled securities, Smart S&P/NZX 50 ETF units and Salt long short fund units since January 2024 and Mainfreight shares since July 2025.

It might be hard to see through the fog of war in the Middle East, but the S&P/NZX 50 index has largely stuck to its knitting as a place of relative safety in our topsy-turvy world, where things move fast and markets move faster.

Yes, New Zealand’s benchmark index is heading for its worst month since the 8.8% slide in January 2022. That was when the last bout of inflation really started rearing its head and central banks began hiking interest rates.

But the 5.7% decline the NZX50’s felt so far this month isn’t so scary compared to a 7.4% decline on the S&P/ASX 200 across the ditch, a 7.8% slide for Wall Street’s Dow Jones Industrial Average and a 9.3% drop for Japan’s Nikkei 225.

That’s how it should be given the dominance of utility-style companies on our exchange, even if the likes of the big four electricity generator-retailers – down between 0.2% and 5.7% so far this month – are looking increasingly like a growth play given the nation’s hunger to build new renewable energy projects.

We don’t have the same exposure to tech as the likes of Hong Kong or the US, while our energy plays are rooted in renewables, rather than the dominance of miners across the Tasman, where there are also plenty of oil and gas explorers.

The few local tech companies on our bourse tend to get walloped when interest rates start rising, with Serko sinking 24% so far this month, Gentrack sinking 19% and Vista Group International tumbling 14%. Meanwhile, the commercial landlords held for their dividends – and who typically gear up to buy buildings – range from an outlier in Argosy Property with its 2.6% dip so far this month to Investore Property’s 11% slide.

We have what’s typically seen as a defensive stock market that’s meant to see smoother peaks and troughs – even if the daily noise can mask what’s happening on a slightly longer timeframe.

I find it hard to take

That can be hard to stomach when some of the moves on the local market seemed out of whack with Trump 2.0’s vacillation between threatening the obliteration of Iran’s energy infrastructure to complimenting the Islamic Republic’s negotiation skills. Just look at our local logistics leader Mainfreight’s movements for some head-spinning stuff, where it posted its biggest one-day gain since November of 6% on Thursday, only to be followed by its steepest one-day slide since September of 4.4% on Friday.

Interest rate markets have been even harder to fathom, with bond traders pricing in as much as 88 basis points of increases – that’s three quarter-point hikes plus a better-than-even chance of a fourth – through the rest of the year.

Soothing words from central bankers around the world, including Reserve Bank governor Anna Breman, that the stagflation threat of the energy shock – where they have to balance rising fuel prices rippling out against slowing growth or even a contraction in economic activity – cooled traders’ jets somewhat, but those rates markets are still predicting at least two domestic hikes this year, and a good chance of a third.

Of course, we might be overreading things a little.

As Kiwibank’s economist team noted, those moves have been amplified by a lack of hedge fund buyers in rates markets, who would normally smooth out that volatility as ready buyers of cheaper assets. Presumably, they’re a bit busy as they deal with increasing stress in their private credit investments to be out there providing liquidity to fixed income markets when it’s needed.

When people run in circles

That’s not to discount the fact that two-year swap rates have climbed 59 basis points so far this month, compared to 46 basis points for 10-year swaps – a flatter yield curve coming from the short end still implies people are betting on higher central bank interest rates.

And with trading banks pricing their mortgage rates in line with swaps, lending costs have started creeping higher again, doing some of the central bank’s job in cooling borrowing.

None of which makes for easy reading for the poor old household feeling the pinch from a hefty jump in petrol prices and, unsurprisingly, is a bit more reluctant to splash out on those big-ticket items that they’ve been holding back on through the interminably long downturn in the Land of the Long White Cloud.

Likewise, investors find themselves in a bind.

The 65% surge in gold prices last year has put that precious metal in rarefied territory, meaning its traditional role as an inflation-hedge has been overshadowed by the likes of leveraged speculators receiving margin calls – and seen the gold price down 14% so far this month at a still hefty US$4,443 an ounce.

Bonds have felt just as much pain as equities as those rising interest rates chip away at the value of existing notes paying smaller returns.

Worn out places

There’s a reason why the government’s inflation-index bonds have been attracting greater demand than their fixed-rate counterparts – institutional investors, largely local ones, are feeling a little uneasy.

That’s to be expected. As Salt Funds Management’s economist Bevan Graham pointed out last week, markets have rightly focused on the immediate moves, with higher oil prices, firmer inflation expectations and a shift to safe havens, wherever they can find them.

We can expect increased volatility in stock markets as relief rallies on signs of peace are quickly reversed when tensions flare up again – just look at some of the price action of the past week.

Graham points out that means there’s going to be a wider dispersion in equities, meaning index-hugging won’t necessarily tell the story of what lies beneath, with energy and commodities obvious beneficiaries and those firms needing strong consumer demand of cheap finance looking more vulnerable.

Not a great place for a net importer like New Zealand to be in, with those fuel costs threatening to drive up prices more broadly, chewing up more of people’s disposable income and throwing yet another unhelpful headwind to our economic recovery, which is struggling to get into first gear.  

All around me are familiar faces

And yes, economists are paring back their bubblier outlooks.

It’s all very tempting to shut up shop when things sour like this and headlines bellow out how much KiwiSaver balances are hurting, even with the appropriate caveats – often buried beyond those first four crucial paragraphs that people tend to read in their daily skimming – that selling or switching to cash during a temporary slump crystallises a loss that would typically be recovered over the coming decades of a pension scheme.

That’s not an easy sell, especially as people face the hard choice of directing more of their take-home pay into the savings scheme just as everything starts to get a little more expensive.

But as Chris Di Leva of Aurellan Asset Management says, volatility is a feature of markets, not a bug, and diversification, avoiding kneejerk responses and keeping valuation entry points in your head remain helpful anchors in an uncertain world.

That last point is a good one to keep front of mind.

Because the only two prices that ultimately matter are the one you pay when you first get in, and the one you receive when you cash up.

Image from Curious News.