On the money: Punters have no belief in gloom-merchant predictions

Michael Coote

Friday 30th April 2004

Bullish expectations of sharemarket investment have been soaring, the quarterly ASB Investor Confidence Survey shows.

The "confidence in your main investment" category shows a net 59% think their shares will perform better, up a strong 20% on previous polling. On a contrarian view, this would be a reason for sobering up one's outlook.

Quite the opposite, people seem to be thinking things can only get better. The latest Colmar Brunton poll, while not cheering news for the government, found optimism about the economy was up at 37% versus pessimism down sharply to 32%.

Gloomy prognostications the economy will slow over 2004/5 do not seem to have translated into public opinion, perhaps in expectation of an election Budget that will rely heavily on stimulating consumption.

The 30% rise in the NZX50 over the past 12 months has been given credit for the big jump in investor expectations for shares. The index has been lauded for clocking up returns that put our local market in the top 10 globally.

It seems to have been forgotten the NZX50 is unusual in being a gross measure leading market index, and therefore not directly comparable with the performance of capital indices typical of other markets.

New Zealand listed companies tend to pay out higher dividends than their foreign counterparts and so their capital gain performance would look more patchy as a proportion of gross return.

Stockbrokers are not going to complain, though, if the measure their market goes by is seen to be thumping the bane of their lives, residential property. Investors have been toning down their predictions for the housing sector, although real estate agents were predictably quick to seize on heartening average price increases out of the latest round of property statistics.

It is a bit of a puzzle why many New Zealanders can call shares their main type of investment. Only a small proportion of households, one might expect. Most investors in managed funds are likely to be in some sort of mixed-asset combination such as a superannuation fund, in which shares feature as only one part of the range, and New Zealand shares an even smaller proportion. These people would hardly cite shares as their number one asset commitment.

The number of households who could name directly-held shares as their main asset would surely be fewer than those with some sort of managed fund holding. As a group, theirs would be a minority opinion. Perhaps they are better informed.

More likely, they have a higher appetite for risk and therefore come across as more bullish. In particular, these people would be preponderantly retail share investors, and while not quite as scarce as hen's teeth, they are not likely to be met in droves unless one's social circle is upper-middle class.

Some insight into the proportion of retail shareholders in the total market was given in figures for stockbroker turnover by value for the year to Friday, April 16. Some big names in retail stockbroking showed surprisingly modest chunks of the total market.

In descending order, Macquarie had 7.7%, Forsyth Barr 4.7%, ABN Amro Craigs 3.3%, and Access Brokerage 1.9%. The last on the list is revealing, as it is a discount broker and presumably is primarily retail. The big hitters in the statistics were wholesale brokers with market share over 20%.

It is likely that optimism concerning the outlook for shares as one's principle asset is not a widely held opinion, but that does not mean to say it is wrong. But a contrarian would wonder if the top is near, and could test those suspicions by the age-old technique of sounding out the proverbial taxi driver in a discussion of how his shares are going.

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