Reflection on last year’s picks
Our broad NZX exposure provided diversification and income, but returns were modest in a weak domestic economy. The market behaved as a low growth, income orientated index at a time when global investors focused on offshore technology and AI related winners. Investing locally underperformed stronger offshore benchmarks.
Mainfreight continued to execute well at an operational level, yet the external environment turned against it. Global freight volumes normalised from very strong levels, cost inflation remained a challenge, and rising tariffs and trade frictions disrupted flows and network efficiency. That combination weighed on margins and sentiment, even though the long-term investment case built on culture and global reach remains intact. EBOS Group was the clear disappointment in share price terms, as contract roll offs, and margin pressure reminded investors that defensive business models can still experience shocks.
(Mainfreight 5-year chart)
Infratil and Contact Energy both delivered more solid progress at the asset level, but faced valuation and sentiment headwinds, even as demand for data, digital infrastructure and clean energy stayed strong. Contact traded through periods of volatility driven by wholesale price movements, project timing and political noise around energy policy. The underlying businesses remain sound.
NZX 50 performance in 2025
The NZX 50 delivered modest total returns over 2025 (As at Nov 2025), with dividends again doing most of the work. Price performance was subdued as earnings growth remained patchy and investors digested a weaker domestic backdrop. Healthcare, commercial property and energy names offered relative stability, while consumer, small cap and housing exposed companies that found it difficult to grow in a soft demand environment.
One year chart of the NZX50 with and without dividends (teal, capital index, white gross index)
The macro setting was clearly a headwind. Economic growth has been significantly weaker than earlier forecasts, with major forecasters now expecting New Zealand GDP to grow by about 1.2 percent in 2025 rather than the 2 percent plus that was once anticipated. The Reserve Bank responded by cutting the Official Cash Rate by 50 basis points to 2.5 percent in October, taking the easing cycle further and leaving the door open to additional reductions as inflation tracks back towards target. Unemployment has risen to about 5.3 percent, the highest rate since 2016, which underlines the spare capacity that has opened up in the labour market. Consumer sentiment remains weak and business confidence, while stabilising, is still cautious.
Globally, the United States is also in an easing phase, with the Federal Reserve cutting rates in October to a 3.75 to 4.00 percent range and signalling that future moves will be data dependent. Growth in advanced economies is expected to be around the low single digits, with fiscal and trade tensions adding uncertainty. Against that backdrop, the NZX has lacked obvious growth engines. The index remains concentrated in utilities, property and mature companies, with limited exposure to global technology or industrial leaders. That structure, combined with a soft domestic economy, has meant the NZX has behaved more like a defensive, income market than a growth market through 2025.
Key investment themes for 2026
The first theme is lower interest rates in a still weak domestic economy. The Reserve Bank is firmly in easing mode and the cost of capital is falling, which should support asset prices and relieve pressure on highly geared balance sheets over time. However, with GDP growth low and unemployment at multi year highs, the real economy is likely to feel subdued for some time. Investors will need to focus on companies that can protect or grow earnings in a low growth setting, rather than assuming a rapid cyclical rebound.
The second theme is infrastructure, renewable energy and data. New Zealand still requires significant investment in generation, grid resilience and digital capacity. Listed utilities and infrastructure owners that can fund and execute these programmes sensibly are positioned to benefit. Globally, AI adoption and cloud migration are supporting multiyear investment in data centres and related infrastructure, which has flow on effects for local energy and connectivity demand.
The third theme is healthcare resilience. An ageing population, essential service demand and often contracted or regulated revenue streams provide more reliable earnings than many domestically focused cyclicals. Healthcare assets with sound balance sheets and sensible capital allocation can continue to deliver modest growth and pricing power that compounds over time, although investors still need to be mindful of regulatory and political risk.
The fourth theme is selective value in an unloved market, with an overlay of political risk. The combination of weak data, negative headlines and higher rates has pushed a number of sound or improving businesses to more attractive through the cycle valuations. At the same time, New Zealand heads into a general election at the end of next year, which is likely to create another layer of uncertainty. Boards commonly defer discretionary capital spending until the policy environment is clearer. That can slow project pipelines in infrastructure, construction and some service industries. Investors will need to separate cyclical weakness from structural decline and focus on companies with balance sheets and management teams that can navigate delay without compromising long term positioning.
Top five NZX stocks to watch in 2026
Ryman Healthcare (RYM)
Ryman remains a leveraged recovery story in an ageing society. Demand and occupancy are underpinned by demographics, and management has refocused on cash flow, development discipline and balance sheet repair. Lower interest rates and a more stable housing market would support unit sales and earnings normalisation. Key risks include consumer preference, sector litigation, gearing, construction cost inflation and ongoing sensitivity to residential property prices in a weak economy.
(Ryman 5-year chart)
Vital Healthcare Property Trust (VHP)
Vital provides exposure to healthcare real estate with long leases and largely inflation linked rents across New Zealand and Australia. Ageing populations and constrained hospital capacity support underlying demand. As the OCR falls, there is scope for gradual improvement in funding costs and capitalisation rates. The internalisation of their management contract and recently undertaken capital raise give an increased outlook for an uplift in earnings. The main watch items are leverage, the pace and pricing of asset recycling, and any regulatory or tenant specific changes that affect rental growth and occupancy.
(VHP 5-year chart)
Freightways (FRW)
Freightways is a core operator in express parcels and information management, with strong brands and dense networks. Parcel volumes have normalised from pandemic highs and domestic demand is soft, but the business continues to generate recurring revenue from essential logistics and document services. Any improvement in small business activity or consumer confidence would assist earnings, and the Australian footprint adds diversification. Risks include fuel and wage inflation, competitive intensity and the possibility that tariffs and trade disruptions continue to affect volumes and network efficiency.
(FRW 5-year chart)
Heartland Group (HGH)
Heartland provides exposure to niche lending segments, including reverse mortgages and vehicle finance, where it has built specialist capability. Easing credit conditions and improved funding costs should support margins and volume growth, provided credit standards remain disciplined. The digital strategy gives Heartland a cost advantage in targeted markets. Key risks are credit quality in a weak economy, wholesale funding conditions and regulatory settings across its different jurisdictions.
(HGH 5-year chart)
Mercury NZ (MCY)
Mercury is a diversified renewable generator with hydro, geothermal and wind assets, and a development pipeline that supports long term growth. The company stands to benefit from the energy transition, increased electrification and potential new sources of demand, including data centres and industrial loads. Lower interest rates support valuations for long life infrastructure, while new projects reaching completion are important catalysts. Hydrology risk, project cost inflation and possible changes to energy policy around and after the election remain the main considerations.
(MCY 5-year chart)
