A primer on the chaos engulfing your Kiwisaver, your Sharesies, your crypto – maybe even your house.
It’s been a long couple of months for those with Kiwisavers, Sharesies accounts, mortgages, a car to fill, a credit card, a crypto wallet or even just a mouth (or mouths) to feed.
Some of the numbers coming out of the markets over the past weeks have been shocking, even by our new “unprecedented times” standards. Tech stocks are getting a battering as the US central bank raises interest rates and inflation shows its teeth, hitting those non-essentials like Netflix hard. Bitcoin, the whale in the crypto space, dropped 24% in the last week alone, mirroring the rest of the cryptocurrency market and prompting an extreme destabilisation of a leading stablecoin. There are some interesting numbers in our housing market too, with prices continuing their slide and Westpac predicting a 15% decline over the next two years. Here’s primer on the chaos, and why it’s happening everywhere all at once.
Tech stocks lose their lustre
Like apparently most other young people in New Zealand, I am the proud owner of a Sharesies account. Along with competing products from Hatch and Stake, these apps have broken down institutional barriers allowing a new generation of investors access to tools used to buy shares in the once-elusive US stock market. They are a fantastic opportunity for a segment of the population who have felt marginalised by the wealth gap and the rising cost of other investments (looking at you, houses), offering them a chance at a seat at the asset table.
Being a part of some of the most volatile trading periods of the past decade wasn’t a part of the deal, so for many new investors it’s been a baptism of fire. Thankfully, while a lot of what was yelled at us during the memestocks glory days (diamond hands, mooning, lots of chat about bears, bulls and buying the dip) is still relevant, they seem a lot quieter now when they say it.
Tech stocks were once the golden child of every good share-trading app portfolio. Now that we’re seeing a sea of red, it’s hard to pick the Netflix from the Blockbuster. The five pillars of the tech stock monument, Alphabet, Amazon, Apple, Meta, and Microsoft, are down between 13% and 38%. Even the S&P500, which had a high point of over a year ago that looks very far away now, hasn’t dropped as hard and fast as our once beloved tech stocks did. The S&P500 being that low does mean however that a year’s worth of gains has essentially been wiped out, with tech based portfolios and funds (the once idolised Cathie Woods’ ARK Innovation fund lost nearly 10% in one day) bearing the brunt of the hit.
What’s the go with crypto?
The “new gold standard”, bitcoin, is down as the US dollar becomes stronger. This is something that the crypto cynics warned might happen, but many analysts say what we’re seeing matches traditional trends of bitcoin following the market, with investors tending to choose what are perceived as less risky assets (including cash) during times of market volatility. Despite its current woes cryptocurrency is still far from finished, with an increasing number of hedge funds and investment banks debuting products that allow their customers access to crypto markets.
The most astonishing event in the crypto space this week concerned UST, a leading stablecoin that is intended to always trade at the same price as the US dollar, unpegged from its fiat counterpart. This isn’t the first time this has happened, but it’s by far the most dramatic. UST dropped to 64c, which for a currency that’s intended to match the dollar perfectly is a major concern, and adds to the volatility surrounding bitcoin among investors. The underlying technology, called Terra, had an even more catastrophic day, declining 94% – completely wiping out many true believers.
This remains a space with a perilous combination of high participation, particularly from younger investors, and low protection and regulation. Grand old sage of investing (and extreme crypto sceptic) Warren Buffet once said to be “fearful when others are greedy, and greedy when others are fearful”, but there are an awful lot of reasons to be fearful in crypto right now.
Not Fun Times for NFTs
A different wise person once said “The bigger they are, the harder they fall”, and it would be harder to get bigger than the spotlight NFTs have had over the past year. Often ridiculed and misunderstood, NFTs caught the eye of clout-chasing Tik Tokkers and every celebrity promised a quick buck (Paris Hilton and Jimmy Fallon trying to flog off Bored Apes on the Tonight Show was some of the cringiest viewing to come out of the initial craze). NFTs could even have been what pushed Elon Musk towards buying Twitter.
Now that the initial hype has died down, NFTs have a chance to dig in and deliver on utility that was actually promised, rather than just speculation for the ape chasers. That doesn’t help the guy who bought Twitter founder Jack Dorsey’s first tweet for US$4.5 million though – the latest attempt at auction got pulled at just US$14,000
What about NZ’s favourite investment – places to live?
If you have recently bought a house, congratulations on the stable roof over your head, but you may not like what banks are forecasting. If you squint past the interest rate rise, and have waited through the storm in anticipation of buying a first house, you may be in luck.
Westpac announced late last week that it expects house prices in New Zealand to fall by 15% within the next two years, which sounds shocking on the face of it (probably because it’s very rare that house prices in Aotearoa seem to decrease in value), but would only drop prices down to where they were at the start of 2021. Westpac bases this off anticipated interest rate increases from our Reserve Bank, which would increase banks’ lending costs, which gets passed down to mortgage holders in the form of higher interest rates. In the here and now, RNZ reported this week that house prices have continued to fall, with the average price falling 2.2% in the three months to April.