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Global appetite for NZ yield stocks on 'pause', Harbour Asset's Bascand says

Friday 23rd March 2018

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Appetite among global fund managers for high-yielding New Zealand stocks has gone on pause for the last three to six months after two to three years of consistent monthly demand, the managing director of Harbour Asset Management, Andrew Bascand, says.

Addressing a Russell Investments seminar for large-scale investors in Wellington, Bascand said global demand for New Zealand shares, while very limited as a proportion of their total investments, had been driven by the fact that "every global fund manager worth their salt has launched a global or an Asia-Pacific ETF (exchange-traded fund) targeting yield stocks".

Bascand said that it had become commonplace at month's end over the last three to four years to see "implementation of ETF buying from the NZ market; block trades".

"It was so predictable that brokers were preparing their books," said Bascand. "What we’ve observed in the last six months is a complete pause" and "in fact at the end of the last two months, the opposite. At the end of the month, we’re seeing block-trade selling in yield names."

That was particularly noticeable in Sky Network Television shares, which are around 58 percent foreign-owned, he said. 

"The rules of those funds are such that when a yield falls they need to exit, or when the market cap drops to a certain point. So Sky Network TV, OK profit result but halved its dividend and of course made other strategic announcements. We’ve already seen the price Sky Network TV already anticipate this, but this is potentially the first of two or three or four yield stocks in NZ that might anticipate pressure."

Sky TV's share price has fallen from $2.80 on Feb. 27, the day before it announced it was halving its interim dividend and slashing prices for its services to respond to competition from online streaming providers. The shares closed at $2.33 today, having traded as low as an all-time low of $2.11 on March 14.

Russell Investments analysis of global fund managers' holdings of New Zealand shares showed interest clustered around just 14 stocks, one of which - Xero - has since decamped to the ASX. Other shares favoured by a combination of US, Asia-Pacific and Australian fund managers included Spark, Auckland International Airport. Fisher & Paykel Healthcare, Fletcher Building, a2 Milk, Ryman Healthcare, Z Energy, and Chorus.

Meanwhile, at a similar presentation to clients of Nikko Asset Management in Wellington, Nikko's head of New Zealand equities Stuart Williams cited a catalogue of local "saints and sinners". 

He identified Metlifecare, Summerset, a2, Restaurant Brands and Mainfreight as showing "quality and structural growth, with supportive demographics underpinning their growth, particularly in an environment of synchronised global growth and favourable food consumption patterns in Asian middle-class markets.

Nikko was taking a "cautious market watch" approach to Spark, NZ Refining, Westpac Banking Corp, and Australia & New Zealand Banking Group, whose "valuations look toppy here and globally".  Despite optimism about a2, he cited valuation concerns as the shares have risen 407 percent in the last year, closing today at $13.73. 

The recently announced joint venture with Fonterra was "transformational", said Williams in slides for his presentation, offering brand endorsement from the world's largest dairy trader, earnings uplift potential in the Australian and New Zealand markets, strong growth in Chinese market share, and reduced risk, including internalising competitive threats.


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