Small slip as market starts year at a gallop

‘Actions taken by [European Central Bank head] Mario Draghi appear to have put a safety net under the European market, and risk assets, generally, around the world.’

THE sharemarket got off to a cracking start in January with higher trading volumes and values – activity that is likely to pick up despite a stumble on international markets this week.

The NZX’s monthly trading figures yesterday showed 69,281 securities were traded in January, up 32.8 per cent compared with the same period 12 months ago.

That was equivalent to $2.3 billion in trade, up 65.7 per cent on last year, boosted by the listing of Fonterra’s Shareholders Fund late last year as well as a surge in investors’ appetite for equities.

The figures follow on from a 21.8 per cent pick-up in trading volumes over the course of 2012 – a move that is expected to grow in the year ahead despite signs the equity bull run may be hitting its first hurdle of 2013.

Global equity markets closed awash in red ink on Monday, amid a flare-up of eurozone fears as Silvio Berlusconi announced plans to re-enter Italian politics.

Sentiment soured further after a press report implicated Spanish Prime Minister Mariano Rajoy in a corruption scandal.

On Wall Street, the Standard & Poor’s 500 Index shed 1.2 per cent, Europe’s Stoxx 600 fell 2.2 per cent, and the NZX 50 finished yesterday’s session 0.8 per cent lower.

However, New Zealand professional investors view the drop as a bump in the road rather than a full reversal of the equity market’s momentum.

Matthew Goodson, a portfolio manager at BT Funds, said the European Central Bank and other financial institutions had done enough work over the past year to prevent a rapid deterioration in global investor sentiment.

‘‘It’s in the lap of the gods as to what happens with political moves in Europe from here, but, broadly speaking, actions taken by [ECB head] Mario Draghi appear to have put a safety net under the European market, and risk assets, generally, around the world,’’ he said.

That, combined with low interest rates keeping returns from Matthew Goodson BT Funds portfolio manager bonds and bank deposits depressed, should continue to lure investors into the sharemarket, and in turn boost activity.

That reflected in the NZX’s January operating metrics, with bond trading activity on the NZX Debt Market extending its downward trend, declining 13.9 per cent compared with January last year.

Also, the Reserve Bank is broadly expected to keep the official cash rate on hold at the historically low level of 2.5 per cent until at least the end of the year.

The other factor likely to boost share-trading activity is the listing of the state-owned enterprises. It is expected that Mighty River Power will be be partially floated by July, followed by either Genesis Energy or Meridian Energy.

‘‘The new listings being touted for this year can only help,’’ said Grant Williamson, a director at Hamilton Hindin Greene.

The market has also been rife with speculation that numerous private sector floats are waiting in the wings, which in turn would add to trading momentum.

Still, the pace is unlikely to keep up with last year’s level, with shares now trading at priceearnings multiples that are seen as fairly priced versus their heavily discounted position at the start of 2012.

Goodson said a significant leap in earnings forecasts could trigger a repeat of the past year, but that was unlikely because ‘‘the economy is hardly on fire’’.