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MARKET CLOSE: NZ shares outperform global rally as low rates bolster local outlook

Thursday 16th May 2019

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New Zealand shares joined a global rally, as the local outlook for low interest rates added tailwind to broader optimism among investors that the US and China will compromise on their trade stoush. China-focused exporter A2 Milk led the local market higher. 

The S&P/NZX 50 Index rose 61.23 points, or 0.6 percent, to 10,131.58. Within the index, 29 stocks gained, 13 fell, and eight were unchanged. Turnover was $144.2 million

Stocks on Wall Street rallied overnight on hope the US and China will find common ground and end their protracted trade dispute, which has seen the resumption of tit-for-tat tariffs being imposed. Stocks were up across Asia, with Australia's S&P/ASX 200 Index up 0.8 percent in afternoon trading. China's Shanghai Composite rose 1.4 percent and South Korea's Kospi Index increased 0.6 percent. 

"We had positive leads out of the US, and then there's the fact that the New Zealand market has an extra tailwind from low interest rates," said Grant Davies, an investment advisor at Hamilton Hindin Greene. 

The Reserve Bank cut the official cash rate to a record 1.5 percent last week, increasing the attraction of companies that pay reliable dividends and giving corporates cheaper access to finance. The lower return also tends to push down the currency, which is a boon for exporters who derive increased value from their foreign sales. 

A2 Milk led the market higher, up 2.6 percent at $16.30 on a volume of 465,000 shares, less than its 90-day average of 799,000. New Zealand's biggest listed company has benefited from successfully breaking into China's infant formula market. Supplier Synlait Milk rose 2 percent to $10.20. 

Utilities and property firms typically benefit from low rates, given their predictable dividend streams. Meridian Energy rose 2.3 percent to $4.28 on a volume of 1 million shares and Vital Healthcare Property Trust was up 1.7 percent at $2.40. Contact Energy increased 0.7 percent to $7.29 on a volume of 2.9 million, more than its 1.7 million average.

Goodman Property Trust increased 0.3 percent to $1.79 on a bigger volume than usual of 1.8 million units. The property investor today reported a 65 percent increase in net profit, driven by an uplift in property valuations, with its portfolio now worth $2.6 billion. 

Fletcher Building rose 2.4 percent to $5.07 on a volume of 499,000 shares, less than half its 1.2 million 90-day average. 

Infratil fell 0.7 percent to $4.45 on a volume of 3.4 million shares, well north of its 438,000 three-month average. The infrastructure investor this week unveiled plans to buy half of Vodafone New Zealand in a $3.4 billion deal. Infratil plans to raise $400 million of equity to help fund its $1 billion share of the acquisition and will provide more details on Friday when it reports its annual result. 

First NZ Capital analysts affirmed their 'neutral' rating on Infratil, while trimming the stock's 12-month target price to $4.23. That was based on the addition of Vodafone to Infratil's portfolio, including the debt taken for the deal and the increased management fee for HRL Morrison & Co. Trustpower, which is controlled by Infratil, increased 0.6 percent to $6.99. 

Davies said it was a fully-priced acquisition in line with trading multiples of listed rival Spark New Zealand. 

"Given their track record, you'd have to give them the benefit of the doubt," he said of Infratil's strategy. 

Spark was the most traded stock with 6.7 million shares changing hands, more than its 90-day average of 5.7 million. The stock rose 1.2 percent to $3.76.

Chorus was unchanged at $6.10. The telecommunications network operator's 2028 bonds paying annual interest of 4.35 percent were the most traded debt security, with a volume of 1.2 million. The notes closed at a yield of 3.47 percent, down 3 basis points. 

Of other companies that traded on volumes of more than a million shares, Pushpay Holdings increased 0.3 percent to $3.96, NZX was unchanged at $1.06, and SkyCity Entertainment Group rose 0.3 percent to $3.85. 

Z Energy increased 0.6 percent to $6.25 on a smaller volume than usual of 717,000 shares. Discount rival Waitomo Group yesterday opened its southern-most fuel stop in Upper Hutt. Director Jimmy Ormsby expects to open another five or six outlets annually as it builds a national network, which currently sits at 65. Z has 343 service stations in its portfolio. 

Skellerup Holdings posted the biggest decline on the benchmark index, down 3.3 percent at $2.34, on a volume of 235,000 shares. Scales Corp fell 1.8 percent to $5. 

Outside the benchmark index, Rakon rose 3.2 percent to 32.5 cents on a volume of 26,000 shares, compared to its 103,000 90-day average. The high-tech components maker will report annual earnings tomorrow. 


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