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Market barometer: Telecom corporate plays could enliven stronger sharemarket

Friday 25th August 2000

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July was generally a down month for sharemarkets but the New Zealand market bucked the trend and rose.

The beginning of August has shown some upturn in overseas indices and retained strength in New Zealand sharemarket measures but the picture is mixed and likely to remain so until after August 22, when the US Federal Reserve announces its latest interest rate policy.

US indices are all over the place.

The Dow Jones industrials has risen to suggest 10,500 as a basis from which to advance, while its sister index the Dow Jones transportation index is also firmer at around 2900.

The NYSE composite is flat, range-trading between 640 and 660-odd, as is the S&P500, still dithering about the 1450 mark.

The tech-rich Nasdaq composite has been sold off and looks wedged between 3500 and 4000.

Drifting markets are the theme elsewhere also.

The London market is stalled but perhaps portending trend change with the FTSE100 screwed down into the 6400 zone.

Australia's ASX100 shows tentative pickup at the 2600 mark.

The NZSE40 has been range-trading in the 2100 to 2150 region but news of possible corporate plays by Telecom to leverage its position with a Japanese telco partner like NTT DoCoMo could liven things up.

Against that, doubts are emerging over market-growth potential for internet-enabled Wap cellphones, whose technology Telecom is reported to be relying on for future performance.

Because of its sheer capitalisation size and volatility in our local market, Telecom's vicissitudes could throw the indices around quite a bit.

Compared to Telstra, which fell in May but has recovered since to around 900cps, Telecom is still weak at the 700-750cps area and must be cheap on various measures such as PEG, the ratio of share price to five-year growth rate forecasts.

Carter Holt Harvey is stalled under 200cps resistance but may benefit from the disappearance of Fletcher Paper and Fletcher Forests, which would leave Carter Holt as the sole large local forestry listing for institutional funds.

The company is also a possible b2b internet play on its attempt to establish itself in e-commerce. Fletcher stocks could contribute to index volatility before they disappear.

The NZSE smaller companies capital index is up from the 4900 doldrums of May to 5400 points.

It is a bit odd in light of falling business confidence surveys, high consumer debt levels and flat domestic demand and mounting inflationary pressures from a low dollar that smaller companies are being bid up.

Retailers look stronger. The Warehouse jumped a dollar or so to the 550cps zone across June and July. Hallenstein Glasson picked up from 180cps in March to 220cps and Michael Hill International made it from 290cps in April to 320cps.

The sharemarket is disagreeing with the opinion polls if the smaller companies capital index can be relied upon.

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