Kiwi not ruffled by US Fed hike
What will the increase mean for NZ investors?
Yesterday’s cash rate hike by the United States Federal Reserve from 1.75 to 2 per cent means the US cash rate is now higher than New Zealand’s for the first time since the 1970s.
James Smalley, an adviser at Hamilton Hindin Greene, says in theory it means people could now get more interest in an on-call bank account in the US than New Zealand where the OCR is set to remain no 1.75 per cent for some time yet.
But he says the real bellwether is the currency. While the New Zealand dollar saw an initial dip to around US69.75c it bounced back within two hours to around US70.5c.
“It has had a minimal impact on the currency. That is real canary in the coal mine stuff.”
What it shows is investors weren’t spooked by the increase but whether that will be the case with the next two hikes remains to be seen.
“This is the first one [this year], what about the second and third, are we going to see a significant strengthening in the US dollar?”
If that is the case any company which has taken on US-denominated debt while the rates were low is likely to see their debt levels rise — if they haven’t taken out a hedge against it. Commodity prices are also likely to increase. But Smalley believes New Zealand’s share market remains attractive as our stocks pay high dividends compared to what investors can get in the bank. “We would need to see a big change to drive people away from shares,” he says.
Hang on a minute
One minute there is talk about Vodafone listing its local arm on the sharemarket and the next its chief executive is leaving. Castle Point fund manager Stephen Bennie says this week’s resignation of Vodafone boss Russell Stanners has been interesting.
“Not too long ago they were sounding out an IPO [initial public offer] where he would have boldly led the business into the foreseeable future. But a few months after ditching the IPO plans, he’s gone. You get the impression that the full story has yet to break on this one.”
Stanners also poured cold water on claims he would be replacing John Fellet as the chief executive of Sky TV. There had been talk that when Sky and Vodafone merged, Stanners would be top dog but the the merger was scuppered by the regulator.
Bennie reckons it’s not too surprising Stanners doesn’t want the Sky job because it is one of the more testing CEO roles going.
“Market consensus is that Sky will see its earnings drop by at least 50 per cent by the year 2022. The new CEO of Sky will have their work cut out from day one to try and pull out of this downward trajectory. It’s clearly not impossible but it’s a heck of a challenge to take on.”
Sky shares are down 29 per cent in the last year and closed at $2.47 yesterday.
Positive spin-off
Amazon’s move to potentially limit access to overseas purchases in Australia may be having a positive spin-off for Kiwi online retailer Trade Me. Its shares have bounced up in the last week after Amazon revealed it would redirect Australian consumers from its international site to its Australia site from July 1 when tax changes come in.
The move will force foreign sellers to pay GST on goods sold under $1000. New Zealand has also signalled moves to charge GST for overseas purchases under $400. There are expectations Amazon will take the same approach here. Nick Dravitzki, an analyst at Devon Funds Management, said Amazon denying Aussie shoppers access to their international websites (if implemented) is a benefit to Aussie-based online retailers.
“If Amazon follows suit in New Zealand (which has to be a very material risk) then Trade Me’s new goods marketplace is perfectly placed to benefit.”
Mohandeep Singh from Craigs Investment Partners, believed there was an element of the Amazon move having a positive effect on Trade Me but also pointed out that the stock has still not recovered from the $5.57 highs it was hitting last year before Amazon revealed plans for a warehouse in Australia.
He said the market’s strong run was also helping to drag Trade Me’s shares up but there was also talk of Trade Me making a capital return to shareholders which would be attractive. Trade Me shares closed yesterdayat $4.86.