Global sharemarkets are at record highs while New Zealand has been left behind

Global sharemarkets are on a tear. The S&P 500 and Nasdaq are hovering near all-time highs. The FTSE 100 is close to its February record. The Russell 2000, which tracks smaller American companies, has reached a fresh peak. Yet while markets around the world are celebrating, New Zealand is sitting roughly 6 percent below the record highs it set in January, and the gap shows no immediate sign of closing.

The contrast is stark enough to raise real questions for Kiwi investors. What is driving global markets upward, and why is New Zealand being left out of the rally?

Rupert Carlyon, the founder of KiwiSaver provider Koura, points to the continuing strength of the United States economy as the foundation. Tax refund data suggests another acceleration in economic activity is under way, and there are no obvious recession signals on the near-term horizon. Carlyon told RNZ that “the US economy continues to be stronger than anticipated” and that the data points to further momentum ahead.

Beyond the economic fundamentals, there is a second force at work. Technology and artificial intelligence have re-emerged as the dominant themes driving equity markets globally. Microsoft rose approximately 15 percent in recent weeks as investors came to terms with the commercial potential of AI tools in everyday business use. Carlyon described the mood as a broad realisation that AI is translating into genuine economic value rather than remaining a distant promise. The AI boom is real, it is priced into markets, and it is lifting the companies that own the technology.

The third factor is the surprising resilience of equity markets in the face of geopolitical uncertainty. The Middle East conflict has pushed oil prices into extreme volatility, with some commodities swinging by as much as 80 percent during the worst of the turbulence. Yet sharemarkets, particularly in the United States, have largely shrugged off the disruption. Greg Smith, an investment specialist at Generate, described equity markets as “looking through the current tensions, to a de-escalation and looking through to the broader resilience of the economy.” The first round of United States earnings results for 2026 came in ahead of analyst expectations, reinforcing that narrative and keeping investor optimism intact.

Mike Taylor of Pie Funds offered perhaps the most vivid explanation for the recent surge. He pointed to the heavy short positioning that built up in March, when many fund managers hedged aggressively against worst-case scenarios for oil prices and geopolitical risk. When those scenarios failed to materialise and equity markets began recovering, short positions had to be covered quickly. Taylor said the dynamic caused the market to rally “like a home-sick angel” — fast, sharp, and driven by necessity rather than fresh conviction.

So why is New Zealand sitting out the party? The answer comes down to a combination of structure and sector.

The first problem is interest rate sensitivity. Carlyon described New Zealand as an economy that is “highly leveraged to interest rates.” That matters because the parts of the NZ sharemarket that tend to drive index returns — utilities and listed property companies — are valued largely by reference to the dividends they pay. When interest rates stay elevated or are expected to rise, those dividends look less attractive relative to bonds, and valuations soften. The domestic property market is also subdued, which compounds the pressure on the parts of the index most exposed to property and long-duration assets.

The second problem is sector composition. The global rally is being driven by technology, defence, and energy. New Zealand has almost none of the first, very little of the second, and only a partial contribution from clean energy companies in the third. Smith noted plainly that New Zealand “hasn’t got the same tech exposure in our markets and we’re a net importer of oil,” which means the country is on the wrong side of both the demand and cost equations simultaneously.

The third issue is specific to the gentailers — the companies that both generate and retail electricity — which make up a significant portion of the NZ index. These businesses face a ceiling that overseas tech companies do not. Carlyon pointed out that politicians “cannot let electricity prices get much higher before they are going to have to intervene,” which caps the upside for energy stocks even as demand grows and global peers thrive. That political risk discount is baked into valuations and acts as a structural drag on the whole market.

Smith also noted a striking divergence between equity markets and bond markets. While equities are taking a broadly optimistic view of the geopolitical situation, bond markets are taking a more cautious stance, focused on the long-term inflationary consequences of elevated oil prices and a prolonged conflict. That tension has not resolved, and for a rate-sensitive market like New Zealand, uncertainty about the direction of interest rates matters enormously.

There is a path to recovery, Smith said, but it is a narrow one. It requires the domestic economy to regain momentum, the Middle East conflict to reach a relatively swift conclusion, and the Reserve Bank to hold off on further rate increases. If all three conditions align, New Zealand could begin closing the gap with global markets. Until they do, Kiwi investors watching the rest of the world celebrate will need to be patient.

For now, the divergence is a lesson in how market composition shapes returns. New Zealand is broadly diversified across many parts of the real economy, but it is not diversified into the sectors doing the heavy lifting in global sharemarkets right now. The structural gap — between a country built on utilities, property, and primary industry, and a world being reshaped by technology and AI — is not something that closes overnight.

What do you think about the outlook for the NZ sharemarket? Leave a comment below and join the conversation.