NZ market a top performer, so why the long faces?
Businesses are being ‘unnecessarily downbeat’, Mark Lister tells Jamie Gray
The sharemarket’s value has gained almost 27 per cent so far this year so why is business confidence falling?
On top of the market’s gain, all the indicators that economists hold dear — GDP growth, terms of trade, inflation, unemployment, balance of payments and the government’s books — are far from dire.
Then there is the market for most of New Zealand’s exports. Aside from logs, prices are very strong.
New Zealand’s 2.1 per cent GDP growth in the year to June was better than Australia’s, Canada’s, the entire Euro area (19 countries), Japan and Britain, according to Stats NZ.
This country was bettered only by the US, which came in at 2.3 per cent over the same period.
But while there’s no doubt the sharemarket has been strong, Craigs Investment Partners head of private wealth research Mark Lister calculates about half of that gain has been driven by just five companies: Fisher & Paykel Healthcare, Meridian Energy, Contact Energy, Auckland International Airport and a2 Milk.
“That tells us that it hasn’t been as broad a rally as some might think — you’ve had to have owned the right stocks,” he says.
Even so, the New Zealand market remains one of the best performers in the world today, so why the long faces?
The September ANZ Business Outlook Survey put business confidence at its lowest level since the depths of the global financial crisis (GFC) in 2008.
While a level of caution might be understandable given the high uncertainty on the global scene, for business confidence to be back at GFC levels seems far-fetched, to say the least, Lister says.
New Zealand corporate earnings, while generally solid, are pointing to a gradual economic slowdown, judging from the most recent company reporting period.
Most results from NZX-listed companies with June 30 balance dates have reflected solid earnings, some dividend growth and strong balance sheets.
“The New Zealand sharemarket is continuing to perform well. It’s having another great year after a buoyant period over the last several years, so you look at that and say someone is wrong,” Lister says.
“Either business confidence surveys are wrong or the sharemarket is wrong.”
The market — with its high proportion of defensive, dividend yield stocks — has been well sought-after thanks to very low interest rates.
It also has a reasonable weighting of high profile, exportoriented stocks in the form of F&P Healthcare and a2 Milk, both of which have benefited from a weakening NZ dollar.
But stocks with a purely domestic focus have, on average, been lagging a little, Lister says.
In that camp he puts construction stock Fletcher Building, Sky City, Freightways and some of the retail stocks.
While not terrible, those stocks had been left in the wake of the power generators and the exporters, he says.
So looking at the S&P/NZX50 alone does not give the full story, but Lister says the business confidence surveys are too “gloom and doom”.
“My suspicion is that businesses are unnecessarily downbeat.
“When you have a $7 billion government surplus, unemployment that starts with a 3, GDP growth of 2.1 per cent, house prices going sideways to slightly up, I can’t see why you would be as worried as you were in the middle of the GFC.
“Our economy is nowhere near the strife that it was in back then.
“People say that there is a political element to those surveys and I suspect that that is accurate, because things are not that bad out there.”
Still, Lister says business was less than impressed with the Government because of what he sees as a failure to connect with business.
“It’s not that they have made bad decisions. It’s just that they have not achieved a lot and they have not instilled confidence in the business sector.
“It still feels like there is a lack of direction — too many working groups and not enough certainty for business.
Businesses like certainty, Lister says.
“The grace period is over and people want to see the results. They are probably a bit frustrated that not a lot is happening and they still don’t have the clarity that they would like.
“I suspect that that might be part of it, but they can’t put the blame completely at the feet of the Beehive.”
Lister says many parts of New Zealand are more upbeat, once you get outside the Auckland region.
“Many of the other regions across New Zealand have enjoyed a bit of a renaissance in the last 18 months to two years, buoyed by firm commodities prices,” he says.
“Bay of Plenty, Hawke’s Bay, Nelson, Marlborough, Dunedin and Southland are upbeat.”