The reason share prices are volatile this year and what it means for investors, KiwiSaver members

Rising interest rates are one the key drivers of market volatility, experts say.
Rising interest rates are one the key drivers of market volatility, experts say. Photo credit: Getty Images.

Share market investors, including KiwiSaver members can expect some ups and downs over the year ahead, experts say.

Investors are reminded that some ups and downs are normal. After 18 months of strong gains, the market is experiencing a correction.

Craigs Investment Partners head of private wealth Mark Lister confirmed the NZX 50 is down around 3.5 percent to 4 percent this year. Compared to the start of 2021, it's down around 8 percent to 9 percent. 

After a strong run over the last 18 months, for most of the last year, the NZX 50 went "sideways to slightly down", Lister told Newshub.

The prospect of rising interest rates is the biggest driver of recent falls, as central banks respond to inflationary pressures.

"Higher interest rates create a headwind for asset prices across the board (shares, properties, businesses)'re getting a reversal of what we've seen over the last several years," Lister explained.

Consumer prices jumped 5.9 percent in the December 2021 quarter, the biggest annual jump in three decades. Having come off a record 0.25 percent low in October, the Official Cash Rate, currently 0.75 percent, is tipped to go higher, ANZ forecasting the cash rate to peak at 3 percent by April 2023.

"All of those things that have gone up dramatically in response to interest rates falling to rock bottom, you're starting to see that work in reverse," Lister added.

As interest rates continue to rise, share investors can expect to see more ups and downs, ahead.  Recent share market investors would need to take note that it will be a case of "back to reality".

"The important thing to realise is that the last 18 months has been an extremely strong period," Lister said.

"Corrections, sell-offs, ups and downs are a normal part of the share market…don't be surprised if you see more of what we've seen this year."

Most KiwiSaver funds are diversified funds. This means investments are spread over a range of companies, typically across New Zealand and overseas.

Financial Advice New Zealand CEO Katrina Shanks, told Newshub providing KiwiSaver members have chosen the right fund for their goals, there's no need to take action.

"There's typically a correction in the market every 16 or 17 months…this is the correction we're seeing now," Shanks said.

Those planning to withdraw money from their KiwiSaver in the near future (e.g. one to three years), could check to ensure their KiwiSaver fund is right for their circumstances.

That may require being in a conservative or balanced fund that has less exposure to riskier assets, such as shares and property.

"If you are older and looking to retire, or if you are young and looking to buy a house, you may need to look to see if that setting is still right for you," Shanks said.

Shanks reminds investors that markets react to rising interest rates and reduced earnings, and not to become preoccupied with checking their balance daily.

"If you've got the right setting and you've got time [to invest], don't get caught up in looking at your balance and panicking about it because it's a long-term investment and it will recover over time."

While the Omicron outbreak isn't having a direct impact on the share market, rising case numbers and workers off sick and /or self-isolating are expected to have an impact on business productivity and activity.

"Some companies will be immune, others will be impacted more…but what we also know from overseas is that it will pass relatively swiftly," Lister added.

After a 1.6 percent fall on January 18, the NZX 50 was up 1 percent on Tuesday's opening.