Why being boring might help the NZX

New Zealand's share market has been an underperformer globally in recent years, but commentators say there are reasons to be optimistic.

The NZX50 is up 10 percent over the past five years and 4.45 percent over the past year, compared to the S&P500 up 62 percent over five years and 10.8 percent over the past year.

Much of the difference is because New Zealand does not have the tech exposure of United States markets. A small number of high-performing tech stocks have pulled up overall returns.

For example, Nvidia has increased more than 440 percent over the past five years, despite its more recent fall.

Koura founder Rupert Carlyon said the local market was dominated by domestic companies, so the growth was restricted to what was happening in the economy.

Lately, that has been subdued.

"Whether it be the gentailers, Spark, Infratil or the property companies, these are all companies that are valued based on dividend yield and their growth will be strongly linked to the NZ economy. Most of these companies are already leaders in their respective categories here in NZ, so it is unclear where the next level of outperformance will come from.

"Fisher Paykel Healthcare and, to a certain extent, Mainfreight are the only ones out taking on the world. Even A2 Milk is a company whose growth is largely linked to the growth of dairy in New Zealand, a nice story, but very hard to see it drive consistent double-digit returns like the large US listed tech companies."

Craigs Investment Partners investment director Mark Lister agreed the sharemarket was linked to the economy's fortunes.

"Not having any tech stocks is a limiting factor, when the tech sector is booming as it has. We've seen markets like New Zealand or the UK as another example of a market that has virtually no tech... when tech's firing away, those markets that don't have those sorts of exposures are much more subdued."

Generate investment specialist Greg Smith said, while New Zealand had been left out of "the AI party", we wouldn't necessarily be left behind forever.

"NZX doesn't have Microsoft, Apple, Nvidia or the other big AI winners, and that has been a major handicap while those stocks have, until recently, driven global indices higher, but boring can be useful. The NZX gives investors a very different mix of companies, generally more income and less exposure to the increasingly concentrated AI trade.

"Plus, if the New Zealand economy is now turning the corner, that could also give the local market a bit more life. After several years where boring has been painful, boring might actually start looking quite attractive."

Lister agreed.

"At the moment, you're seeing a lot of volatility across the tech space and that's where the weakness is coming from in the US. It's all the AI stocks and the tech stocks that are finding themselves under pressure, and our market's actually going OK.

"In the face of that, we don't have a tech sector that is getting sold off or whatever, so sometimes boring is good.

"It's already in correction territory in most places, but if you saw it come under further pressure, then there is a scenario where we just sail through. Maybe we don't necessarily rocket ahead, but maybe we drift higher or maybe we sort of go sideways, and that might not be a bad outcome.

"If you're a New Zealand investor who has ignored the New Zealand market, and gone all in into the Nvidias and the tech stocks and the AI stocks in the US, you're feeling a little bit battered and bruised right now, whereas if you're an investor who has got a more diversified portfolio, you've still got some of our local stocks and you've got some overseas stocks, you're probably faring a lot better, because we're holding up much better than many of those overseas markets at the moment."

Carlyon said anyone looking to hide from the AI bubble could also do it in bonds or larger US utilities.

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