2021: A year so tough even the New Zealand share market fell

This time last year it felt like we had been through a year for the ages and that some calm surely had to lie ahead. Sadly 2021 turned out to be another torrid year, with central banks and governments fighting to fend off the impact of the Delta wave.

The extra spice in 2021 was that they were doing this in a backdrop of rising prices and a stirring of the inflation bogeyman, a financial villain that has not been sighted in decades.

In a world where zero-interest rates have become the dominant metric for pricing asset classes, inflation threatens to break the code and force dramatic repricing.

For example, in a zero-interest rate regime, current corporate earnings take a very distant second place to potentially large future earnings. A portfolio of companies that have exciting prospects can perform extremely well in that regime, despite potentially currently earning very little.