The first corporate reporting season of the year is expected to reflect the weak economic conditions experienced in the second half of 2023, with a murky outlook for some blue chip companies.
Analysts will be focused on how corporate revenues have been tracking, along with outlook statements, when the first of some 50 NZX-listed companies release their results for the period ended December over the next few weeks.
"I think when investors think about company earnings over the past six months, the expectations are very, very low at present and likely the lowest they've been since we came out of the GFC," Millford Asset Management portfolio manager Sam Trethewey said, referring to the global financial crisis in 2008.
He said there were particular weakness among companies most exposed to domestic economic activity, including Fletcher Building, Freightways, Air New Zealand, Sky City and Port of Tauranga.
"We saw a number of these businesses downgrade or give weak trading updates at the backend of last year, during the AGM season."
Trethewey said it would be difficult to convince investors that the tough times were behind them.
"I mean the economy has gone from what was a rockstar economy five to 10 years ago to the rock bottom really, and I think the cautiousness will be the default position for many this time around."
The NZX market, which is interest rate-sensitive, rose just 2.3 percent in 2023. It would have been worse if not for a post-general election rally in November and December.
Devon Funds Management head of retail Greg Smith said New Zealand's relatively weak economy had been a drag on the market, and expected companies with exposure to global markets to have done better than those reliant on the domestic economy, such as retail companies.
"The economy doesn't seem to be firing as much as, say, the [United States] or others. And then obviously we got this challenge of a lot of people still coming off low mortgage rates."
Smith added that commodity-exposed businesses would have also struggled.
"We haven't had the same sort of commodity boosts that Australia has, for instance."
Commodity prices rose 1.4 percent last month after a year of steady declines.
Dairy prices were increasing, though meat and fibre prices were flat, with weaker prices for lamb.
Global shipping prices were trending higher, increasing the cost of shipping commodities long distances, which was helping to improve the price of forestry products within Asia.
Two to watch
While the market rally carried through into January, there were a couple of standouts. Speciality dairy company A2 Milk saw a 29 percent annual increase in its share price, while Fletcher Building's dropped 26 percent from last year's peak price on escalating costs and other risks.
While the market was already factoring in the effect of high inflation costs on revenue lines, unexpected cost increases associated with Fletcher Building was a significant concern as the company set aside $180 million to cover likely losses on two big projects - the New Zealand International Convention Centre and Wellington Airport carpark.
These costs were in addition to $10m Fletcher had already set aside to repair problems with plumbing pipes in Western Australia.
"There wasn't any guidance on what's happening with the pipe issue in Australia," Smith said.
Trethewey said another tough issue would be whether Fletcher paid a dividend to shareholders.
"The market will be looking for how the company is going to manage its balance sheet or its cash balance in the months ahead," Trethewey said.
Smith said A2 Milk was another to watch, with a positive outlook for a recovery in China and and expansion in the United States.
He said the market would be looking closely at A2 Milk's growth expectations.