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Newsroom.co.nz

Business

Andrew Patterson

An unthinkable 2022 – and a NZ firm that fared even worse than Facebook

Facebook NZ United States

Not since the infamous dot com bust in 2000 have so many former high-flyers seen their share prices implode so rapidly. In the US Facebook has seen its stock price decline 65 percent since the start of the year with Tesla now running a close second. And NZ tech/transport firm Eroad did even worse.... Photo: Getty Images

2022 has been the year of reckoning: Russia’s decision to invade Ukraine, central banks hiking interest rates at the fastest rate in almost 40 years, the implosion of the crypto space , and the year the tech stocks tanked

There’s no sugar-coating it; 2022 has been brutal for investors.

Following the onset of the Covid-19 pandemic in early 2020 and the response by central banks to pump prime economies with massive monetary stimulus, investing became simply a one way bet as a V-shaped recovery quickly kicked into high gear.

Seasoned market watchers, however, knew there would have to be a point of reckoning and 2022 has been that inflection point.

Not that the ‘so-called’ experts saw it coming. Goldman Sachs, a leading US investment bank, forecast at the start of the year the benchmark S&P500 index would finish 2022 at 5,100, a gain of around 10 percent. In fact, the S&P is on track to end the year down almost 20 percent.

While the NZX50 hasn’t fared quite as badly (yet) it too is set to finish the year down around 12 percent, its biggest annual decline since the global financial crisis in 2008.

But as is always the case with markets it was the surprises, or black swans as they are often labelled, that added significantly to this year’s pain.

Russia’s decision to invade Ukraine driving up oil and other commodity prices and feeding inflation was forecast by almost no one, central banks hiking interest rates at the fastest rate in almost 40 years in increments of 75 basis points would have been considered laughable this time last year, and the implosion of the crypto space and the arrest last week of high profile FTX founder Sam Bankman-Fried on fraud charges which could see him spend the rest of his life in prison, brought new meaning to the word hubris. The rapid implosion of FTX in just a matter of weeks is already being labelled one of America’s most egregious financial frauds on record.

Not since the peak of the GFC in 2008 have investors had to deal with such a raft of calamities.

However, if 2022 is to be remembered for a single theme it would have to be inflation.

This time last year, the world’s most influential central bank was assuring investors that inflation was transitory and nothing to worry about. How wrong they turned out to be.

In their defence, the US Federal Reserve wasn’t the only one to get it wrong, though NZ Reserve Bank governor Adrian Orr might be smarting that at least he got a head start on the others after becoming one of the first central banks to begin hiking rates early.

The fact that inflation has been far more prevalent, persistent and darn-right stubborn than anyone saw coming forced central banks to rapidly modify their policy stance in ways few predicted last year.

What has surprised everyone though is how resilient consumers have been to higher prices, and particularly higher interest rates, though there is now a palpable sense of foreboding about what might be ahead in 2023.

It’s hard to recall a year when forecasting has been so challenging with so many different variables at play to consider. As former US Defence Secretary once famously said, it’s the “unknown unknowns” that make predictions so difficult.

How enduring will inflation continue to be? How much longer will central banks have to continue hiking rates, or even if they stop hiking might rates have to stay higher for longer? But perhaps the most important question of all is: how long will businesses and consumers be able to endure ongoing price hikes?

There are already signs that consumers are beginning to feel stressed. Data out last week in the US found that credit card balances in the third quarter had increased 15 percent year-over-year, the largest annual jump since the New York Fed began tracking credit data in 2004.

Both inflation and growth in almost all countries in 2023 will depend on the progress of the war in Ukraine, which will affect energy prices, the success of China’s move away from a zero-Covid policy, the uncertain effects of the interest rate rises already implemented and the risk that households and companies tighten their belts as a downturn arrives, making it substantially worse.

2022 will also be remembered as the year when tech stocks tanked. Not since the infamous dot com bust in 2000 have so many former high-flyers seen their share prices implode so rapidly. In the US Facebook has seen its stock price decline 65 percent since the start of the year with Tesla now running a close second.

Here too we have seen several former market darlings such as ERoad plunge more than 80 percent in value, along with other tech stocks such as Pacific Edge down 65 percent and Serko down 64 percent.

One of the biggest disappointments locally would have to be My Food Bag which has plunged almost 60 percent in value this year. After a massively over hyped listing last year retail investors, many of them customers of the meal kit company, have been left holding stock in a business with low barriers to entry and struggling to compete against increased competition and a product that can easily be dispensed with in a downturn.

Similarly, Ryman Healthcare which saw its shares fall below $6 last week for the first time in almost 10 years faces a perfect storm of declining property values and higher borrowing costs that has seen investors dumping the stock on mass in recent months.

On the plus side, Channel Infrastructure (formerly Refining NZ) which underperformed last year took out line honours for the year's best performing share price, up 56 percent. It was followed by Spark (up 24 percent), Chorus (up 19 percent) and a2 Milk, another laggard last year, which is finishing the year with a gain of almost 20 percent.

However, just 20 NZX listed companies managed to finish the year in the green.

Investors should prepare for another challenging year ahead, though 2022 may well turn out to the entrée to the main course which is still to be served up.

► This column will take a break over the Christmas/New Year period and return in late January. Seasons Greetings to readers and enjoy a well earned break to recharge your batteries for what promises to be another tricky year in 2023.

2022 by the numbers