Michael Sherrock is Amova head of New Zealand equities.
ANALYSIS: Firstly, having volunteered a yearly lookahead column this time last year for the one that’s just been, it’s nice to be invited back! Back then, with New Zealand in the economic doldrums, I predicted a year of two halves– and while this hasn’t been reflected in an even split, it’s fair to say that 2025 has closed with the economy, and markets, in a far better state that when it began.
The Official Cash Rate (OCR) was always going to be central to our economic story this year. I’d talked about “caution trumping confidence” through the first half, and this certainly appeared to be Reserve Bank Governor Adrian Orr’s catchcry as he favoured easing off the brake with incremental drops. Only recently, and with a new driver now at the RBNZ wheel, have we seen this fall below 3% into what’s regarded as stimulatory territory.
Having taken a beating at the start of the year, our equity market has bounced back through the latter part. While only 12 stocks in the NZX 50 Index are down year-to-date, these losses have been concentrated in companies with large weightings, therefore the result is an Index return of only 4.1% - paltry by global comparison.
I’ll of course take the credit for picking it, but it obviously didn’t take a genius to work out that dropping interest rates were always going to support the real estate sector. This is up 15% this year, while the retirement sector has also been a late bloomer in 2025 – up 24% over the last three months to December. Elsewhere around the market, after struggling for most of the year and not helped by a capital raise, Sky City Entertainment is up 18% for the last two months to December, while Sky TV is up 50% year-to-date. Set against that 4% Index figure, if nothing else 2025 has definitely been a year that’s built the case for active investment.
And so to what to expect of the markets in 2026. Well for this, I’ve picked six key themes to see us through…
Dropping the OCR is not like waving a magic wand over the economy, with the impact of cuts felt on delay, mainly through the eventual refixing of mortgages. In this regard, relief is finally being felt by homeowners, who now find themselves with more discretionary income for consumer items – and following the end-of-year cut to 2.25%, we’d expect to see a significant uptick in retail activity in 2026.
At the time of writing, Freightways has already reported a positive shift in getting goods to people’s doors. It’s too early to read too much into November’s results though, so we’ll really need to wait until February’s reporting season to see what sort of a Christmas it’s been.
As I’ve already mentioned, for many of our publicly listed companies, the comeback is already on – and I expect this momentum to be carried through into 2026 with a better year ahead for those of a cyclical nature.
The wider real estate spectrum should continue to attract investors looking to rehouse capital from term deposits as values increase and yields continue to look attractive. Spark, which has proved to be slightly more cyclical than we had thought, continues to rebound from a couple of years’ under-performance. Sky City, with its Convention Centre finally open and the City Rail Link delivering more people to its front door, should be a beneficiary of greater discretionary spend. While even Air New Zealand, with its challenges of faulty engines and more aggressive competition from Qantas, can find succour in the fact that more people are flying again.
2026 may prove to be a year too early for a return to form for the Fletcher dark horse, but they can at least draw comfort from the fact that while builders may not yet be busy again, architects seemingly are.
With the giant caveat that anything – or indeed everything – could change at the speed of a single tweet, our exporters are pretty well-positioned in terms of exposure to the strong US dollar, or perhaps more accurately, the weak NZ dollar.
Americans love their beef. In fact, they love our beef, washed down with some of our fine wine. While beef tariffs have been taken off the table for now, American consumers will be prepared to pay for some additional seasoning should this change again next year.
Our other major exporter to the US, F&P Healthcare, is also currently sitting comfortably within the tariff regime of the moment from its Mexican base – but again the prevailing tripartite trade agreement that covers them is by no means set in stone.
As for our dollar, well it’s probably now reached its low point. But with the Reserve Bank likely to play a waiting game at least until the end of the year before considering taking the OCR back up a notch, 2026 will continue to favour those taking goods out of New Zealand, over those bringing them in.
Just as a larger amount of discretionary spend should find its way into the pockets of retailers, with interest rates down, capital that had been held in long-term savings vehicles like term deposits will now be seeking a new home in the rebounding equity markets.
We should also see greater appetite continue to be shown for risk-on strategies in KiwiSaver and other investment vehicles, as more of us recognise that, with time to ride out volatility, this gives us the best opportunity to build the nest egg we’ll need to support our retirement. With other options offering significantly lower prospect of reward, we’re likely to see more Kiwis move from a savings mindset to an investing one.
From Restaurant Brands sale to Finaccess to the Lactalis purchase of Fonterra’s consumer brands*, we’ve seen a number of international buyouts of Kiwi companies towards the end of 2025 - but it’s not just our food and drink that’s looking tasty to foreign eyes. With our dollar having depreciated 5.7% and 6.3% respectively against the Aussie and US dollar in the last six months, it’s never been cheaper to buy a piece of NZ Inc, with the future currency improvement making for an attractive long-term investment proposition.
Which of our NZX-listed companies could be next in line for a takeover bid? Sky TV may have a few would-be suitors tuning their dials!
For all the talk of the economic and market momentum that will build through 2026, there’s a strong risk that it will all come to a grinding halt towards the end of the year as we head back to the polls.
The years of consensus politics seem to be behind us, and there are big gaps in how the parties see the world – not just between the left and the right, but also between existing coalition partners. Nowhere is this clearer than when it comes to our energy future – and while the current Government has given market players a mandate to raise money, any large investment decisions will likely be deferred until the new Government make-up is known. Which, who knows, may not be until 2027, when hopefully I’ll be back again with a few more market predictions …
*At the time of writing this deal is yet to be completed