The NZX has reached a record high despite economic uncertainty. Here's what New Zealand's sharemarket may be signalling about resilience and recovery.
On any given day, it isn’t hard to find negative commentary about New Zealand.
We’re told the economy is struggling, young people are leaving, businesses are under pressure, government finances are stretched, and confidence remains fragile.
Some of those concerns are entirely justified.
Which is why it might come as a surprise that the New Zealand sharemarket quietly reached a fresh record high this week.
If you’d been told at the start of the year that New Zealand inflation would climb back above the Reserve Bank’s target range, oil prices would hit US$100 a barrel, and Donald Trump would launch another round of tariffs, you probably wouldn’t have picked the NZX to be setting new highs.
Yet that is exactly what happened.
While investors have spent much of the year worrying about what could go wrong, the New Zealand economy has quietly demonstrated something that markets reward above all else: resilience.
Why the NZX is reaching record highs despite economic uncertainty
Now, before anyone gets too excited, the NZX hasn’t exactly been setting the world on fire. The gains have been steady rather than spectacular. Unlike some overseas markets, there haven’t been dozens of stocks doubling in value or a tidal wave of excitement sweeping across investors.
In fact, outside a handful of notable performers such as Infratil and the ever-reliable Port of Tauranga, there haven’t been many obvious heroes so far this year. Recent record highs have been driven more by quiet progress than outright exuberance.
But perhaps that’s the point.
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Sometimes markets don’t climb because everything is perfect. They climb because things are proving better than feared.
Markets are also inherently forward-looking. They don’t wait for every economic indicator to improve before moving higher. Instead, they price in where they believe the economy and company earnings are heading over the next 12 to 18 months, rather than where they are today.
How a weaker New Zealand dollar is supporting the economy
One of the often-overlooked factors behind New Zealand’s resilience has been the weaker Kiwi dollar.
A weaker currency creates both winners and losers. On one hand, it provides a meaningful tailwind for exporters. Every US dollar earned selling dairy products, tourism experiences, wine, software or services offshore converts back into more New Zealand dollars. It also increases the New Zealand-dollar value of offshore earnings for many listed companies. That’s good news for businesses, investors and, ultimately, the wider economy.
On the other hand, it can make overseas travel feel eye-wateringly expensive. I was reminded of that during a recent trip to Europe, where a takeaway coffee in Paris cost the equivalent of almost $15. Suddenly, a weak Kiwi dollar no longer feels like an abstract economic concept.
On the flip side, the benefits of a weaker currency can already be seen across parts of the economy.
Tourism continues to recover strongly. Gondola and Luge operator Skyline Enterprises recently reported full year revenue growth of 15% to $239 million, while profit before tax surged more than 50% to $102 million. Queenstown continues to attract strong visitor demand, highlighting how a weaker currency is making New Zealand an attractive destination for international visitors.
Regional economic trends are creating very different outcomes
Of course, not all parts of New Zealand are experiencing the economy in the same way.
One of the defining features of the current environment is the growing divergence between regions.
Large parts of the South Island are benefiting from some powerful tailwinds. Tourism has recovered strongly, international visitor numbers continue to improve, and agricultural incomes are receiving support from a combination of relatively firm commodity prices and a weaker currency. Businesses exposed to export, agriculture and tourism markets are generally enjoying a much stronger backdrop.
Meanwhile, Wellington and areas more dependent on government spending are facing a different reality. Public sector restructuring, softer employment conditions and subdued business confidence have created a more challenging environment for the capital. Businesses heavily exposed to domestic consumption continue to navigate households that are still grappling with higher mortgage costs and elevated living expenses. This has also flowed through to softening investment and employment intentions.
On top of this, most of what New Zealand imports becomes more expensive when the currency weakens, particularly energy. Because New Zealand imports virtually all of its refined fuel, rising oil prices and a weaker currency can create a double hit for households and businesses.
That was evident in last week’s June quarter inflation figures, with higher petrol prices accounting for almost a quarter of the 4.1% annual increase.
Adding to the uncertainty is the latest round of tariff announcements from Donald Trump. New Zealand now faces a 12.5% tariff on many exports to the United States. Importantly, around a third of our exports by value, including key products such as beef and, reportedly, kiwifruit, remain exempt under existing carve-outs. There also remains legal uncertainty around parts of the tariff regime, with several challenges still working their way through the US courts.
What global markets and trade conditions mean for New Zealand investors
So, trade tensions persist, inflation remains above the central bank’s target, and the situation in Iran also remains uncertain.
But markets aren’t trying to predict today’s headlines. They’re trying to anticipate tomorrow’s. Will geopolitical tensions eventually ease? Will oil prices retreat from recent highs? Will trade tensions begin to unwind? Could interest rates also be closer to their peak than markets currently fear?
Nobody knows with certainty. But investors recognise that today’s uncertainties rarely last forever, and markets have a habit of looking through them long before they are fully resolved.
New Zealand’s fortunes of course don’t depend solely on domestic conditions. As a small, open economy, the global backdrop matters enormously. Recent business surveys across the United States, Europe, Japan and Australia all point to economies that are still growing. Australia’s labour market remains remarkably robust. That’s important for New Zealand because we’re a small, trade-dependent economy. Another positive is that global dairy prices are seeing signs of stabilisation.
Meanwhile, New Zealand will also soon enter another election cycle, raising familiar questions around policy, taxation and government spending. History however suggests markets are generally more interested in the long-term direction of economic growth and corporate earnings than which party happens to occupy the Beehive.
What the upcoming NZX reporting season could reveal
There is another reason the NZX50’s record high matters.
Over the next month, around half of the NZX 50 will report their latest results, providing perhaps the clearest health check on corporate New Zealand that we’ll get all year.
Investors will be watching closely to see whether the resilience reflected in the sharemarket is flowing through into company earnings. Exporters and businesses benefiting from a weaker New Zealand dollar are generally expected to be in relatively good shape, helped by stronger offshore revenues and a tourism sector that continues to recover.
The bigger question may be what we hear from the more domestically focused businesses. Retailers, property-related companies and businesses exposed to household spending will provide an important insight into how New Zealand consumers are coping with higher interest rates, rising living costs and ongoing economic uncertainty.
In many ways, the upcoming reporting season will help answer the question investors are asking today: is the New Zealand economy still fragile, or is it quietly strengthening beneath the surface?
Long-term investing lessons from the NZX and KiwiSaver growth
In any event, this is all a useful lesson for investors.
Markets rarely reward perfection.
In fact, uncertainty is the normal state of investing, not the exception.
The reality is that there is always something to worry about. A quarter of a century ago it was terrorism and war. Nearly 20 years ago it was the Global Financial Crisis. Six years ago it was a pandemic. Today it is inflation, tariffs, geopolitics, election uncertainty and concerns about economic growth.
If investors waited for the headlines to become reassuring, they would probably never invest at all.
The NZX itself is a reminder of this. Since the NZX 50 was launched in 2003, it has delivered annualised returns of around 11% per annum, including reinvested dividends and imputation credits, despite surviving a global financial crisis, multiple recessions, a pandemic and countless geopolitical shocks along the way.
Importantly, a significant portion of those returns has come from dividends. It is a reminder that long-term wealth creation often comes from owning profitable, cash-generative businesses rather than chasing the latest market excitement.
The continued growth of KiwiSaver has reinforced that trend, with millions of New Zealanders becoming long-term investors while providing an increasingly important source of capital for local businesses and markets.
Perhaps that’s one of the great ironies of investing. The markets that generate the most headlines are not always the ones that create the most wealth. Sometimes the biggest rewards come from simply owning a diversified collection of quality businesses and giving them time to compound.
None of this means New Zealand’s challenges have disappeared. Inflation remains elevated, mortgage rates are high, households continue to face cost-of-living pressures, and global uncertainty is significant.
But this week’s record high reminds us that economies, businesses and investors are often far more adaptable than the headlines suggest.
Perhaps the market is telling us something.
Just maybe, New Zealand is being underestimated once again.