NZ stocks rally, led by banks on US rescue plan

Monday 22nd September 2008

New Zealand stocks rallied, sending the benchmark NZX 50 Index up 2.1% as more details emerged of a US plan to soak up toxic debts related to the mortgage market.

The New Zealand-listed stocks of ANZ Banking Group, AMP and Westpac led the advance on news of the proposal and after the Australian Securities and Investments Commission extended a ban on short-selling. ANZ Bank jumped 8.3% and AMP rose 8.9% and Westpac gained 3.6%. Fletcher Building, which operates the Formica laminated board business in the US, rose 4.6%. Telecom Corp. rose 4% to NZ$2.83.

The US government plans to spend about US$1 trillion on bad mortgage-related assets and guarantees to money-market mutual funds to restore confidence in the financial system and stem further company failures. The New Zealand dollar rose to more than 69 US cents and was recently at 68.63 cents.

"There's an element of relief in it," said Alan Moore, who helps manage NZ$260 million at Milford Asset Management.

Also, "there are expectations that interest rates will fall further and people are looking at whether to roll over their fixed interest rates, which are not going to be so attractive," he said. "So, financially sound companies may be being looked at."

Fletcher Building has dropped 42% in the past 12 months, having reached NZ$12.99 late last year. The stock is trading at a P/E of 7.5. That's well below Australian rival Boral Ltd.'s ratio of 15.6.

Moore, who started as a fund manager at the ACC in the mid-1970s, says he is "sleeping well at night because I believe we will work through this" financial crisis.

"There's probably going to be quite a bit of negative news over the next few weeks at best and the US rescue plan hasn't been ratified yet," he said. Still, the expertise and weaponry to counteract the crisis is far greater than it was in the run-up to the Great Depression, he said.

By Jonathan Underhill

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