Bull market lifts NZX to new high

The benchmark NZX 50 index has hit 8000 points for the first time ever, continuing a remarkable run for the New Zealand sharemarket.

A measure of the value of a group of New Zealand’s 50 largest public companies, the record high reflects rising share prices and dividend payments.

The index reached the psychological high for the first time just after midday yesterday.

New Zealand company shares have been surging since early 2009, when the index fell as low as 2522, at a time when the economy was in recession and world financial markets were in turmoil.

Over the past five years, the NZX 50 has been rising between 9 per cent and 24 per cent, while term deposits have typically been paying less than 4 per cent.

Grant Davies, an investment adviser at Hamilton Hindin Greene, said markets had been buoyed by historically low interest rates, forcing investors to seek out the higher returns on offer from share investments – typically those with a strong dividend.

‘‘It’s just a story of companies that are performing reasonably well against a backdrop of very low interest rates, forcing people to take slightly more risk for the yield that’s on offer.’’

Meridian Energy and Genesis Energy, the majority Crownowned electricity generators, are paying gross dividend yields of more than 8 per cent, far higher than returns in bank accounts.

The NZX 50 is a gross index, which means the rise takes account of the dividends on the shares, in contrast to well-known global markets such as New York’s S&P 500 or London’s FTSE 100.

New Zealand’s major listed companies are, compared with offshore indexes, more focused on paying dividends.

‘‘If you stripped out all the dividends that have been paid, we’re reaching new highs, sure, but certainly not highs relative to what you’ve seen in the [United] States since the global financial crisis,’’ Davies said.

The latest high comes amid warnings that the recent surge in shares may be coming to an end.

Jbwere warned before the election that clients should slash their exposure to New Zealand shares by a quarter, while Forsyth Barr is also advising clients to consider swapping investments in New Zealand to offshore.

Bernard Doyle, a Jbwere strategist, said in August that New Zealand was one of the world’s most expensive sharemarkets.

The market has since risen by about another 3 per cent and Doyle said he had concerns about current valuations given the economy was hitting constraints.

‘‘When you look at our economy, [it’s] very hard to accelerate from this point. It would be a lot easier for it to go through a period of treading water or slowing down a bit,’’ Doyle said.

Doyle did not, however, believe the market was shaping up for a crash. ‘‘I don’t think we’re in a bubble here. We’re still telling clients to hold New Zealand shares; we’re just saying hold a little less than normal.’’

"We're still telling clients to hold New Zealand shares; we're just saying hold a little less than normal." Jbwere strategist Bernard Doyle