A2 holds sway on market

February would have been dire without milk firm’s surge

A2 Milk, New Zealand’s biggest listed stock, is already having an influence on the rest of the sharemarket. With its market capitalisation sitting at well over $10 billion, the company has a sizeable 11.2 per cent weighting on the benchmark NZX 50 index.

Historically, the market has from time to time been dominated by a small handful of stocks.

In days gone by, the market was all about trees and telephones — with Telecom, Fletcher Building, Fletcher Paper, and Carter Holt Harvey making up half the index of the day.

Today, investors will have already witnessed the a2 effect.

Up until February, the sharemarket had been going quite well, racking up an unprecedented 13 months of straight gains.

That month, the NZX 50 dropped by 0.8 per cent, but over the same period, a2 Milk rallied by $3.88 a share or 41 per cent.

Had it not been for a2 Milk, the index would have been down by 4.2 per cent, Salt Funds Management’s managing director Matt Goodson estimates.

“The reality is that, under the hood, it was a very weak month for a number of New Zealand’s biggest stocks, but offset by a2,” Goodson says.

“The interesting thing is that it [a2] is both large and volatile,” he said. “It’s largely been on an upward trend, it has to be said, but certainly in New Zealand we are used to stocks having very large index weights,” Goodson said.

“Given that it is both large and volatile, a tremendous amount of analysis is focusing on it and on trying to predict what will happen next,” he said.

A2 is a huge exporter to China — largely through its success in infant formula through the so-called daigou channels.

History has shown that the infant formula market can change quickly, either from a regulatory perspective, or from a food safety standpoint.

“There are some unquantifiable and unforecastable left-field risks, given the nature of the company,” Goodson says.

“But to date, they have executed phenomenally well.”