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Despite this week's DeepSeek shakeup, commentators are picking a generally positive year for sharemarkets, albeit with some challenges close to home.
Jeremy Sullivan, an investment adviser at Hamilton Hindin Green, said the revelation that Chinese AI start-up DeepSeek had developed its AI app at a fraction of the cost of US models, could end up being a positive for the sector, if it produced competition.
"There's potential for the large players to learn from competition and potentially align their more powerful CPUs in a similar fashion and create exponential growth in the development of AI computing."
Nvidia has seen its share price slump about 15 percent on the news.
Sullivan said, more generally, the concentration risk in technology stocks was a concern.
These have been star performers in recent times, and many investors have piled in, pushing valuations up.
Some commentators thought the market now had similarities to 1996 or 1997, before the "dotcom" bubble burst, he said.
Sullivan said HHG's global stock picks for the year were Salesforce, a customer management system, which had revenue up 11 percent in 2024, investment firm BlackRock, accounting software provider Xero, which had a 90 percent rise in EBITDA in its 2024 financial year, WiseTech Global and US retailer Walmart.
The global economy is expected to grow about 3 percent in 2025.
Greg Smith, head of retail at Devon Funds Management, said he expected volatility to pick up this year.
The DeepSeek sell-off showed the potential for stocks such as Nvidia to be disrupted.
"That's a bit of a wake-up call for investors in Nvidia in particular but also super cap tech stocks. Nvidia has had its own way for quite a long time but it's had a discount disruptor in the form of DeepSeek and that raises questions of whether it will continue to have it all its own way. It shows how quickly things are evolving in this space."
He agreed with Sullivan that tech stocks had been dominant over the past 18 months but could face risks. "The sector is becoming quite over-owned. There was a report in Australia saying super funds holdings of Nvidia are almost A$30 billion [NZ$33b]. That's probably a question mark that could cause periods of volatility this year."
Closer to home
Sullivan said New Zealand's economy was coming off a very low base, with the largest contraction of any of the G20 nations in 2024. Higher interest rates caused by higher inflation from the US, where the economy is still growing relatively strongly, would not be good for New Zealand.
"An overarching increase in business and consumer sentiment is positive and there will be another rate cut here shortly which will make people feel better … where the rubber hits the road will be in earnings season and that's likely to have some pretty weak numbers in it.
"It's like trying to turn around an oil tanker going full steam. It doesn't just happen. It will take a while to bring ourselves out of quite a marked decline in economic activity."
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Sullivan said HHG's local stock picks were sharemarket operator NZX, Mainfreight, Ebos, Infratil and Contact Energy.
He said NZX was well positioned to benefit from an increase in market activity as the economic outlook improved and interest rates fell. Contact would benefit from a global shift to more sustainable energy sources.
Forsyth Barr picked Ryman Healthcare, Manawa Energy, Vista Group, Tourism Holdings and Sanford.
Devon Funds Management picked Summerset, AFT, Freightways, Port of Tauranga and Contact Energy.
Smith said the Reserve Bank had more cause than most central banks to keep cutting rates. "We are pretty much the only country among our trading partners where the services sector is in contraction. New Zealand is probably a bit different in that respect."
He said rates coming down could be a tonic for the stock market. The New Zealand dollar falling would also be a benefit to exporters, and lower interest rates might boost stocks that pay dividends because they would be more attractive an investment compared to cash in the bank.
"The retail sector has not been going very well - we could see a resurgence in the second half of the year in our market."
He said some of the high quality cyclical companies could also do well. "We're in the worst recession per capita in 30 years. There will be some light at the end of the tunnel, particularly if we see more rate cuts than expected from the Reserve Bank."
Us President Donald Trump Photo: AFP / Getty Images North America / Andrew Harnik
And what about Trump?
Commentators had been picking another Donald Trump presidency would be a benefit for the markets.
Sullivan said the Trump effect had played out as expected so far. There was a surge in values when he got in, with lower taxes and pro-business policies.
But that was tempered by the potential for tariffs to lead to higher inflation.
Smith said if inflation picked up again, it could raise questions about how many rate cuts central banks really could put through this year.
"Inflation is persistent [in the US] so the Fed can take a bit more time in terms of cutting rates. It could cause a bit of volatility, particularly in the growth end of the market - we've seen that before, growth stocks underperform when interest rates are high but are better as rates come down.
"If interest rates start hanging where they are then that could also add fuel to volatility in the high growth super cap names. That could in itself cause a bit of rotation back to the more value end of the market."
Greg Boland, Tiger Brokers chief strategy officer, said Trump could be negative for investors as well as positive. Freeing up regulation for financial companies, oil and maybe the healthcare sector would help the market, he said. "But then there's also unknowns."
Lower taxes could help smaller companies but higher tariffs could create other problems.
But he said he was optimistic about the year ahead. "A lot of US market analysts have come out and said they thought the S&P500 might be up between 10 percent and 15 percent."
He said markets had tended to do well in the year after a US election, in recent times. After Barack Obama's second win, the US market was up almost 30 percent in a year. In Biden and Trump's first years, it was up about 24 percent.
So far, it had been a mixed bag, he said.
