Will the NZX have a positive 2022?

Like many stock exchanges globally, the New Zealand stock exchange continues to emerge from the COVID-19 pandemic-induced trough of 2020, although volatility remains as the pandemic drags on and as markets face new challenges such as the ongoing geopolitical tensions in Europe.

NZX had a lackluster year in 2021
The NZX 50 ended 2021 flat at 13,033.77, marginally down from 13,091.64 at the end of 2020 after nine consecutive years of growth. The capital market’s lackluster performance came as the New Zealand economy grew at a weaker-than-expected pace in 2021.

Data from the NZX (NZE:NZX) showed that the total value of stocks traded last year fell 2.4% year over year to NZ$52.4 billion, significantly weaker than the 41.8% jump in 2020.

Still attractive for IPOs
However, the NZX remained appealing for initial public offerings and secondary listings in 2021, with the value of new capital listed and raised rising 12.1% to $19.8 billion. The bourse hosted the IPOs of nine new companies last year. In 2020, total capital raised from IPOs fell 5.5% to NZ$17.6 billion, with only eight new additions to the NZX.

Last year, local meal kit home delivery service platform My Food Bag (NZE:MFB) launched the biggest IPO in the country in seven years, raising NZ$342 million and valuing the company at close to NZ$450 million.

NZX, in its annual report, attributed the increase in the number of first-time listers last year to some changes that it carried out including reducing the complexity and costs of IPO applications.

This year, New Zealand’s IPO pipeline is not looking as rosy as last year with no major rumors of a potential listing.

Globally, the lingering pandemic and geopolitical shocks are expected to weigh on investor appetite for new listings, according to PwC’s 2022 outlook. However, the accounting firm noted that "optimism remains high that vaccines and other mitigation strategies can prevent widespread lockdowns, keeping equity markets steady and maintaining the environment many prospective companies seek when going public.”

Higher volatility looms for 2022
Investors will have to buckle up for a wild ride this year as markets emerge from post-pandemic recovery and as central banks tighten their monetary policies in response to higher inflation. At home, the Reserve Bank of New Zealand expects the official cash rate to climb 2.5% in the next 12 months before peaking at 3.25% at 2023-end.

Best stocks for NZX’s growth
Despite market challenges, the NZX is poised to benefit from the strong performance of some high-performing stocks with stellar balance sheets, high profitability, and strong free cash flow generation.

SKY Network Television (NZE:SKT) is among the best performers on the NZX. The stock bounced strongly in the first quarter of 2022, surging 56% over the past year as of Wednesday. The broadcast company recorded better-than-expected earnings in the six months ended Dec. 31, driven by strong customer growth after the company offered promotions during COVID-19 lockdowns.

Steel Tube (NZSE:STU) is another growth driver for the NZX as the company cashed in on higher steel prices despite supply chain pressures, with its recent half-year profit tripling.

EBOS Group (NZE:EBO), whose shares surged to an all-time high in January, is also off to a good year as the healthcare company posted another record first half recently owing to its diversified portfolio of healthcare and animal care products.

The NZX may also see a boost from other high-performing stocks including fuel distributor Z Energy (NZE:ZEL), logistics firm Mainfreight (NZE:MFT), utilities firm Contact Energy (NZE:CEN) and renewable energy company Infratil (NZE:IFT).