As New Zealand grapples with an economic downturn expected to persist into next year, some sectors have shown remarkable resilience, providing a silver lining amidst widespread financial strain. Despite household budgets being squeezed by rising home loan rates and major retailers like The Warehouse posting significant losses, certain industries and regions are weathering the storm better than others.
Power Companies Shine Amid Uncertainty
Power companies have emerged as robust performers during these challenging times. Research firm Morningstar highlighted the positive impact of Rio Tinto’s decision to keep the Tiwai Point aluminium smelter operational until the end of 2044. This move has provided a much-needed boost to the energy sector, as the closure of the smelter would have led to significantly lower wholesale electricity prices, adversely affecting gentailers’ earnings.
Meridian Energy, the smelter’s primary supplier, stands to gain the most, followed by Contact Energy and Mercury Energy. Even Genesis Energy and Manawa Energy, which have no direct exposure, benefit from the overall stability and increased demand for electricity. Morningstar noted, “The move reduces risk for the whole sector because it will support electricity demand and prices.” The firm has subsequently upgraded Meridian’s medium-term earnings forecast by 10%.
Pathfinder portfolio manager Hamesh Sharma added that the sector remains resilient due to consistent demand for power, driven in part by the transition to electric vehicles. “Stocks that have had a good couple of months or year-to-date are those that have exposure to the mega themes where demand is still robust and not dependent on the broader economy,” Sharma stated.
Dairy Farmers and the Agricultural Sector
While meat farmers face challenges, dairy farmers are experiencing a more favorable market. Dairy prices have reached their highest levels in 18 months, with Fonterra’s forecast payouts indicating potential increases. Mark Lister, investment director at Craigs Investment Partners, commented, “The agricultural sector is in a little bit better shape [as are] some industries tied to the agricultural sector.”
Baby Boomers Benefit from High Deposit Rates
Older households are faring better compared to their younger counterparts during the economic downturn. ANZ chief economist Sharon Zollner pointed to Centrix data showing lower rates of financial hardship among those aged 65 and above. This demographic has benefited from higher term deposit rates, which have increased from about 1% during the pandemic to over 5%.
“Boomers are doing fine,” Zollner noted. “They are more likely to have term deposits and be really pleased that term deposit rates are high.” She also highlighted that those with savings and mortgage-free homes are less affected by the current financial pressures.
Queenstown and Wanaka: Tourism Havens
The tourism-driven economies of Queenstown and Wanaka have shown remarkable resilience. The Real Estate Institute’s house price index reveals that while nationwide house prices have seen modest increases, Queenstown’s prices have surged by 9.7% over the past year. This area continues to thrive thanks to robust international tourism.
BNZ chief economist Mike Jones observed, “We’re seeing the South Island in particular record less weak numbers,” indicating that tourism inflows have remained stable.
Cryptocurrencies: A Volatile Yet Lucrative Haven
Cryptocurrencies have also provided significant returns amidst the downturn. Funds such as Koura’s carbon-neutral cryptocurrency fund have seen returns exceeding 100% over the past year. Bitcoin, for instance, has soared from under $14,000 five years ago to over $110,000, with Ethereum rising from about $400 to $6,000.
Despite their notorious volatility, cryptocurrencies have rewarded those who invested early. However, the future of these digital assets remains uncertain, underscoring the importance of cautious investment strategies.
As New Zealand navigates through economic turbulence, these resilient sectors offer hope and underscore the diverse nature of the nation’s economic landscape.
