Time to Move Before You Get Caught in the Meridian Watershed

Brent King

Thursday 19th September 2013

The market has continued to react to the words of the World’s central bankers and politicians. There is still a very tight focus on Ben Bernanke. This is very unhealthy, as Central Bankers should be concerned about controlling the money supply NOT running the World’s economies. The other aspects of Central Government that affect Commerce and have a greater impact (e.g. Treasury, Tax Policies, Trade Policies, Tariffs, Labour Policies, etc.) are far more important.

Central Banks can only really turn the money supply taps on or off, adjust interest rates and bail out Banks from time to time. They simply cannot fix all the other imbalances in the economies.

Closer to home we have another issue that all investors should be thinking about – the Government’s privatisations !

There are two very important points here:

The price of Mighty River Power shares has been very disappointing and many of the investors we have spoken to have been turned off future issues. The pricing seemed too high and with such an overhang that the price softened. One big issue has been the number of advisors and fund managers who bought the stock and put it in the various funds. These include Kiwisavers, Conservative or Balanced Funds and a number of discretionary funds. All of these have suffered negative performance. There is talk about brokers on selling the stock on listing at premiums to funds. This is how people are interpreting the number of trades and the price bouncing around on that very active Friday. The FMA should look to see where all that stock ended up. It is bad enough for investors to lose the 30cents per share (i.e. after listing at $2.50 the current price is $2.20) but if your fund paid $2.65 you would be very unhappy !!!
The biggest issue was that the NZ market struggled with that volume. The IPO itself got the Government what it wanted (i.e. the maximum price) but it has reinforced many people’s view that the NZX and NZ market is simply not run for investors. The loser was the new investor that this was touted to be for. Investors lost value in this investment, however there is still significant evidence it also had a downward pull on smaller shares. Investors sold other stocks to pay for their investment in Mighty River Power shares. The pool of capital is finite and Investors, even the fund managers, have a limited amount of capital to invest. They cannot own everything, so the selling effect is often as strong as the buying effect.

Big Lesson

Facts

The National led Government is determined to partially sell Meridian and list the shares on NZX. This is a bigger offer than Mighty River Power.

The Labour and Greens Parties have given notice of their intended policy, if elected, which will have an effect on the profitability in the sector.

I am sure they will be more organized this time around and the policy will have a greater effect.

My view on the results of the above will be:

The price of Meridian will be more competitive (i.e. the Government will want an increase after listing not a decrease).
There will be a bigger effect on other companies (expect strong selling of second liners !).
The offer is probably the smart one to take because of this.

Action to take now

Have a look at your investments and see which of these could be affected by the Meridian offer.

If you are a seller, probably the earlier you do it the better. Do it now before the PR machines get moving and the market gets spooked.

Talk to your advisor about any shares (or Bonds) that could be vulnerable and look to exit at best price whilst you have time.

Brent King is the Managing Director of King Capital & Investment Corporation Ltd and its subsidiaries, Equity Investment Advisors Ltd and MoneyOnline Ltd.
This article is of a general nature and is based on market conditions and information available at the time of writing.

ALL investors are encouraged to speak to their advisors to obtain advice specific to their own position.

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