Sharemarket skies suddenly brighter
THE NOISY lot that are fighting an unending war to overturn the Government’s proposals to sell up to 49 per cent of state energy companies, and ignoring its election mandate to do so, should be getting more disconsolate by the day.
Increasing numbers of small investors are flocking back to the sharemarket, suggesting that if this momentum continues the market will be in fine shape with heightened popular demand for these attractive new issues when they become available.
Markets don’t rise forever and it is impossible to gauge how healthy it will be later this year. As a seasoned market watcher, I believe it can be expected at some stage to stage a ‘‘correction’’ – a polite way of saying ‘‘go into reverse’’, though how severe this might be is anyone’s guess.
A month or two ago few would have believed that the NZX, like most other markets, would be staging such strong gains after three years in the doldrums due to a nonstop diet of worrying economic news.
Suddenly the skies seem to have brightened, thanks to a largely unanticipated flow of promising economic news from the United States that is encouraging optimists to hope that the world’s most powerful country will succeed in leading the world to recovery. This is the least the US can do: its lax money policy and greedy bankers were mainly responsible for creating the current global mess.
Today’s Kiwi buyers are primarily chasing yield stocks – because they offer, especially those with tax imputation, higher returns than are likely to be found from a bank, government stock or other reasonable quality fixed interest investments for the immediate future. Many Kiwi companies have manageable debt and seem well placed for an economic recovery and from the Christchurch reconstruction.
Sentiment is being underpinned by optimistic forecasts for dairying even after the drop in forecast payout, beef and for some other farm commodities. After a protracted period of reducing debt, farmers are spending again. There are signs of a mild pickup in consumer confidence, manufacturing activity, and Auckland is leading the way in upward house price movements.
The New Zealand sharemarket is easily outperforming Australia, whose indices are at similar levels to 12 months ago.
The Australian Financial Review noted Telecom was the best performer in the Australian top 200 indices (where it is also listed) in the week to March 12 – with a gain of 8.43 per cent in Aussie dollars.
Over the past year the ASX Top50 is down 5.7 per cent, while the NZX Top 50 is up by the same margin. This pales into insignificance to the US, where Standard and Poor’s top 500 index is over 1400 for the first time in four years, while the Nasdaq index, thanks to booming Apple shares, is at levels last seen 11 years ago in the dotcom boom.
Kiwis have pushed Telecom up from $1.98 to a high of $2.55 on Thursday, though it slipped to $2.45 on Friday.
People buying now feel like kicking themselves. If they had bought 5000 shares at $2.50 before it was separated from its former Chorus subsidiary, they would have got 1000 Chorus shares for free, and be around $3600 ahead. After the separation Chorus shares were trading at $2.91 compared with $3.59 on Friday.
Trademe has been another giddy performer. Its majority owner Fairfax – which like other media companies is finding life tough – may be encouraged to sell further Trademe stock in a market that wants more and that polls rate as our No 2 brand. This could bring it back under majority local control.
Those lucky enough to get shares in the partial float paid $2.75 and the stock was $3.45 on Friday. The speed of these upward movements is presumably confounding analysts.
First NZ Capital, one of the broking firms that bought the issue to market, has a 12-month target of $2.60 on the stock, and an underperform recommendation. They say Trademe is doing a great job in driving growth off an arguably mature auction model and notes the robust growth in its classified advertising. FNZC believes Trademe’s implied earnings multiples are overly demanding compared to its Australian rivals. In contrast Goldman Sachs recommends it a buy with a $3.55 target, while UBS’S target is $3.05.
Our media tends to portray Australia as the land of milk and honey. As noted before in this column. people considering migrating there should take care.
A further 15,000 people lost jobs there last month, bringing the unemployment rate to 5.3 per cent; some forecasts say it will hit 6 per cent.
The real rate is said to be higher as many have given up looking for jobs and have left the workforce. Due to the distorting impact of the mining boom, the best employment prospects seem to be in West Australia.
Latest Australian economic data is surprisingly gloomy, which is why the Aussie share market has lost the gloss it held after the 2007 global financial crisis when it was rated the world’s top performing market.
What is potentially worrying for New Zealand is that many of the difficulties confronting Australia are due to its high dollar; currency forecasters here are predicting our dollar will resume its upward movements later this year.