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NZ shares poised for new record after Fed unexpectedly keeps stimulus in place

Thursday 19th September 2013

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New Zealand's share market is poised to touch a yet another new record today after the Federal Reserve unexpectedly kept its US$85 billion monthly money printing programme to support the US economic recovery.

Stocks on Wall Street rallied, pushing the Dow Jones Industrial Average and the Standard & Poor's 500 Index to record highs, after the Fed's announcement at 6am New Zealand time. Investors had expected the Fed to start trimming its stimulus by at least US$10 billion this month. New Zealand's benchmark NZX 50 Index already starts the day at a record 4,703.830 when trading begins at 10am in Wellington.

"The market will take this positively," said Shane Solly, who helps manage $200 million in equities at Mint Asset Management. "It is certainly supportive of some of the stocks, particularly the utilities and some of the higher yielding securities that have been under pressure lately in anticipation of higher long-term interest rates.

"We will see a renewed focus back on those investments that benefit from rates being lower for longer," Solly said. "It's New Zealand in general because most of our stocks have a relatively high yield and a relatively modest risk."

Solly declined to comment on the likely level for the NZX 50 today. Still, recent gains in the local benchmark means it may not react as strongly today as the US market, he said.

The New Zealand dollar jumped more than 1 US cent after the Fed announcement, recently trading at 83.58 US cents, which typically weighs on demand for exporters with exposure to a weaker greenback.

Solly said the Fed's decision may be helpful for the New Zealand government's plan to list state-owned Meridian Energy next month, as investors take a renewed interest in the industry sector.

The Fed's decision is a "double edged sword" as it is effectively saying it will continue to support the US economy because it is concerned the economy is not as robust as they previously thought it could be, he said.

The US central bank downgraded its forecasts for the world's biggest economy, saying it expects growth in a 2 to 2.3 percent range this year, down from its June estimate of 2.3 to 2.6 percent growth. Similarly, next year the Fed expects the US economy to expand 2.9 to 3.1 percent, down from its previous estimate of 3 to 3.5 percent.

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