By Gareth Vaughan
As 2015 gets underway Brian Gaynor says he's a little less optimistic than he was this time last year, and warns the housing market is heading for a fall - at some point.
In a Double Shot interview Gaynor, executive director at Milford Asset Management, told interest.co.nz he expects 2015 to be a good year.
"I think it's going to be a good year, (but) probably I'm slightly less confident than I was this time last year," Gaynor said.
"If you look at it I think (New Zealand) economic growth will be slightly lower than it was last year. I think the sharemarket's performance will be positive, but a little bit lower than last year. But there's a lot of momentum going into it. And the fact that Australia is suffering, which means that we are not losing our talented people to Australia to the same extent, we are getting some of them coming back, means that's always positive for New Zealand."
"So (I'm) positive but probably not quite as positive as I was feeling this time last year."
A year ago Gaynor said he expected 2014 to be a once in a generation year for New Zealand. Looking back now he says 2014 didn't pan out quite as well as he'd hoped.
"It actually was a good year from a New Zealand economy point of view, but two things happened that probably took the steam out of it. First of all in February dairy prices peaked and then they fell 50% from there till the end of the year. And that put a pall of pessimism across the country. And the second thing of course (was) the Reserve Bank increased interest rates a number of times."
'Stock selection opportunities harder to find'
In terms of the domestic sharemarket, Gaynor said it's a stock selection environment.
"Are there opportunities out there? They're harder to find, there's no question about that but there will be (opportunities)."
"I do think there'll be more IPOs this year, and I do think some of our bigger companies may do a bit better," Gaynor said.
"Last year was up 17%. I doubt if the (share)market will be up 17% this year. I mean we've set lower expectations to our clients. We're saying 7-12% (and) if we can do that we'll be very happy. Whereas previous years we said 8-15%. So our predictions are a little bit lower for this year, but they're still positive. But it will be hard work, no question about it."
In terms of Australia and the Australian sharemarket, Gaynor's more pessimistic.
"I think they have a lot of issues. Capital expenditure in the mining industry is going to drop dramatically, and therefore the Australian government will be forced to use some stimulus. But with the huge budget deficit they're facing over there I think they have less room to move. So I think Australia maybe more difficult this year. But there's over 2000 listed companies and it doesn't mean that 2000 companies go down in value," said Gaynor.
"There'll be 300 to 400 that will do very well so it's going to come back to picking the right companies once again in Australia. And because of the huge number of companies listed there, there are going to be opportunities there, but you're going to have to work pretty hard to get them."
Housing market 'a massive medium-term concern'
With the latest Real Estate Institute of New Zealand and Quotable Value figures having shown a strong finish to 2014 for the housing market driven by Auckland, Gaynor predicts this will continue into 2015 but won't last forever.
"Property's hard to pick. There's no question about it there's massive momentum to the property market. The way that the property market normally runs out of steam is a big increase in supply. The supply doesn't look like it's coming this year. So I can see housing going even higher," said Gaynor.
"But it is a major medium term concern because there's no question in my mind at some stage, and I don't know when, the property market will come back. And it will come back 10, 15, 20 or even 25% and that will have a really devastating impact upon the New Zealand economy because of the high level of debt. Will it be this year? Probably not, but it could be. Will it be next year? I'm not sure. It could be two or three years time but it will happen at some stage."
"Asset prices don't keep on going up year after year although most New Zealand investors believe that they do," Gaynor added.
Asked what could trigger a significant fall in house prices, Gaynor said supply and the Australian economy were key factors.
"It's supply. It's a big increase in supply and a big upturn in the Australian economy. When all of a sudden Australia does better you get people leaving, going to Australia and you get less New Zealanders coming back here, and at the same time there's a big increase in supply. Supply is normally the major thing that kills it and we're not getting the supply this year, and particularly in Auckland we're not getting anything like it."
"There's talk about the amount of houses we need to build but we're not building them. A lot of the companies are very cautious. They're finding it difficult to make money building houses because although prices are high the cost of materials and the cost of labour, (is also high)," said Gaynor.
"If you look at the Trade Me latest job ads there's a huge amount of ads for people in the construction industry and property industry. It's a sign that the big companies just can't find the skilled people to work on these projects, and when they do get them they're having to pay them very high wages."
US has 'right kind of positivity'
In terms of the global economic picture Gaynor said he had recently spent a few weeks in the United States where there was "the right kind of positivity."
"It's not a bubble, it's not crazy optimism, it's just that things are picking up. The (US) economy's creating about 250,000 new jobs every month," he said.
"However the rest of the world is probably not as good. Certainly Europe is not in a great shape and China is certainly slowing. But the oil price decrease is a bit like a tax cut right across the world and it's going to benefit quite a lot of countries."
Overall it ( the global economy) is positive but it's probably not booming. But with low interest rates and oil prices down, I'm reasonably optimistic about the year ahead," Gaynor said.
In terms of oil prices he suggested they could fall further, perhaps to US$35 to US$40 a barrel.
"I don't think we're going to get much of a pick up in the next three to four months."
Dairy prices 'interesting in 2015'
And as for dairy prices these would be interesting in 2015.
"A lot of what happens in New Zealand will be dependent upon that. If prices start picking up, and even if they only pick up 10-15%, it will be incredibly positive for New Zealand because the direction which prices are going is just as important as how much they increase," Gaynor said.
Overall he expects a mixed year for dairy prices.
As for the New Zealand dollar, Gaynor doubts the parity with the Australian dollar picked by some pundits will occur, sees the US dollar strengthening, but expects the Kiwi to stay strong against the likes of the Euro and Yen.