Investment Insight |
2020 in the rearview mirror
On 27 March New Zealand was two days into a four-week nationwide lockdown, China had closed its borders to all foreigners and the United States had recorded the highest number of COVID-19 cases globally while approving an historic US$2 trillion of spending in response.
In our 27 March 2020 | Market Update Four we wrote that “there is no better time to buy shares.” Share markets were priced at levels not seen since the Global Financial Crisis. Given low interest rates coupled with economic stimulus, we expected a three- to four-fold gain in shares over the next five years, just as we saw post-February 2009 and following the 2000-2002 tech crash.
Given the health consequences suffered by millions of people around the globe and the economic burdens faced by people and businesses, it was to some unthinkable that financial markets would now be trading at record highs. This highlights the relentless forward-looking nature of markets.
It is not just the sharp drawdown and equally fast recovery in financial markets that made 2020 a year that none of us will forget in a hurry. Below are some highlights and lowlights which have driven clients’ return outcomes in a year dominated by COVID-19.
Negative(!) crude oil prices: In April the oil price fell from $20 to negative $38, albeit oil prices were only negative for a couple of days. This was caused by a significant drop in oil demand as air travel and industry essentially ground to a halt due to COVID-19. Oil producers were running out of storage space so they started paying other companies to take crude oil off their hands.
Big technology companies continue to soar: The five largest US technology companies cumulatively added US$2.2 trillion to their market capitalisation. The share price performance for these companies is: Apple +67%, Amazon +71%, Microsoft +37%, Facebook +38%, Google +34%. Apple, the largest of these companies, now has a market capitalisation of $2.1 trillion (versus New Zealand’s GDP of $205 billion).
Air New Zealand grounded: In April, the number of kilometres travelled by passengers on Air New Zealand planes was only 2% of what it was in the prior year. Even in October, this number remains at just 15% of what it was in October last year.
Kiwis continue to buy homes: In October, new mortgage lending was 28% above what it was in October last year. First home buyer numbers were 27% higher than last year, but investment buyer numbers were 59% higher.
Institutional participation in Bitcoin hits all time high: As measured by the number of large institutions – such as pension funds, endowments, family offices and hedge funds – holding significant positions in Chicago Mercantile Exchange Bitcoin futures. Other well-known names like Fidelity Investments, Paul Tudor Jones, Stanley Druckenmiller, and recently the $7 trillion money manager BlackRock, have touted Bitcoin’s potential.
Alphabetical characterisations: This year has had multiple alphabetical market recovery characterisations; including a V for the stock market’s recovery, a W for the ongoing volatility inherent in the global economy, and an L for leisure/hospitality. It’s obvious now that a K-shaped recovery, where different parts of the economy recover at different rates, came out the winner.
Vaccine development: It is rare for a vaccine to be developed in less than five years. When the first COVID-19 immunisation takes place in the Untied Kingdom next week, it will mark the most rapid vaccine development in history.
As we review 2020, we achieved our number one goal of protecting clients’ capital in a large market drawdown while fully participating in the market rebound. As we look forward to 2021, we continue to identify enormous opportunities for active and curious investors. The availability of vaccines leading to a normalised global economy will dictate global share markets in 2021. We have positioned client portfolios accordingly. See 20 November 2020 | Curiosity – Three cheers for shares for our latest thoughts and themes.
That leaves us to say thank you to all NZ Funds clients, advisers, friends, and family who have been on the 2020 journey with us. We view our role as guardians of your retirement savings as a privilege and we are humbled by the trust which you place in us. We will continue to work hard throughout the festive season to make sure your portfolios react to market conditions, and we look forward to reconnecting with you in the new year. Until then have a wonderful and safe summer.
Ka kite anō au i a koutou.
In our 27 March 2020 | Market Update Four we wrote that “there is no better time to buy shares.” Share markets were priced at levels not seen since the Global Financial Crisis. Given low interest rates coupled with economic stimulus, we expected a three- to four-fold gain in shares over the next five years, just as we saw post-February 2009 and following the 2000-2002 tech crash.
Given the health consequences suffered by millions of people around the globe and the economic burdens faced by people and businesses, it was to some unthinkable that financial markets would now be trading at record highs. This highlights the relentless forward-looking nature of markets.
It is not just the sharp drawdown and equally fast recovery in financial markets that made 2020 a year that none of us will forget in a hurry. Below are some highlights and lowlights which have driven clients’ return outcomes in a year dominated by COVID-19.
Negative(!) crude oil prices: In April the oil price fell from $20 to negative $38, albeit oil prices were only negative for a couple of days. This was caused by a significant drop in oil demand as air travel and industry essentially ground to a halt due to COVID-19. Oil producers were running out of storage space so they started paying other companies to take crude oil off their hands.
Big technology companies continue to soar: The five largest US technology companies cumulatively added US$2.2 trillion to their market capitalisation. The share price performance for these companies is: Apple +67%, Amazon +71%, Microsoft +37%, Facebook +38%, Google +34%. Apple, the largest of these companies, now has a market capitalisation of $2.1 trillion (versus New Zealand’s GDP of $205 billion).
Air New Zealand grounded: In April, the number of kilometres travelled by passengers on Air New Zealand planes was only 2% of what it was in the prior year. Even in October, this number remains at just 15% of what it was in October last year.
Kiwis continue to buy homes: In October, new mortgage lending was 28% above what it was in October last year. First home buyer numbers were 27% higher than last year, but investment buyer numbers were 59% higher.
Institutional participation in Bitcoin hits all time high: As measured by the number of large institutions – such as pension funds, endowments, family offices and hedge funds – holding significant positions in Chicago Mercantile Exchange Bitcoin futures. Other well-known names like Fidelity Investments, Paul Tudor Jones, Stanley Druckenmiller, and recently the $7 trillion money manager BlackRock, have touted Bitcoin’s potential.
Alphabetical characterisations: This year has had multiple alphabetical market recovery characterisations; including a V for the stock market’s recovery, a W for the ongoing volatility inherent in the global economy, and an L for leisure/hospitality. It’s obvious now that a K-shaped recovery, where different parts of the economy recover at different rates, came out the winner.
Vaccine development: It is rare for a vaccine to be developed in less than five years. When the first COVID-19 immunisation takes place in the Untied Kingdom next week, it will mark the most rapid vaccine development in history.
As we review 2020, we achieved our number one goal of protecting clients’ capital in a large market drawdown while fully participating in the market rebound. As we look forward to 2021, we continue to identify enormous opportunities for active and curious investors. The availability of vaccines leading to a normalised global economy will dictate global share markets in 2021. We have positioned client portfolios accordingly. See 20 November 2020 | Curiosity – Three cheers for shares for our latest thoughts and themes.
That leaves us to say thank you to all NZ Funds clients, advisers, friends, and family who have been on the 2020 journey with us. We view our role as guardians of your retirement savings as a privilege and we are humbled by the trust which you place in us. We will continue to work hard throughout the festive season to make sure your portfolios react to market conditions, and we look forward to reconnecting with you in the new year. Until then have a wonderful and safe summer.
Ka kite anō au i a koutou.
Source: Bloomberg.
For more information please contact NZ Funds.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
For more information please contact NZ Funds.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
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James Grigor is Chief Investment Officer for New Zealand Funds Management Limited (NZ Funds) and a member of the NZ Funds KiwiSaver Scheme. James' comments are of a general nature, and he is not responsible for any loss that any reader may suffer from following it.
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