Monday 9th October 2017
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New Zealand's benchmark S&P/NZX 50 Index has topped 8,000 for the first time as tepid inflation, low interest rates and a stable economic outlook make returns from stocks a standout compared to other asset classes.
The NZX 50 rose 0.5 percent to 8016.89, and earlier touched a record 8017.44, bringing its gain this year to about 16 percent. That would mark the fifth straight year of above-10 percent gains.
The gains have been driven by some of the economy's powerhouses - dairy products and tourism. A2 Milk is up 236 percent for the year and its manufacturing partner Synlait Milk has climbed 116 percent. Air New Zealand shares have advanced 57 percent and campervan hire company Tourism Holdings has gained 33 percent. Online accounting firm Xero has resumed its place as a stand-out performer, rising 80 percent, while Fisher & Paykel Healthcare, with access to the US market for healthcare products, is up 48 percent.
"Like most jurisdictions, New Zealand has low inflation and low interest rates," said Tim Kronfeld, senior dealer at OMF. "There's only one asset class that gives you a return and that's the share market."
Even though the local bourse has welcomed few new listings this year and in 2016 lost companies including Nuplex Industries and Diligent Corp, "with KiwiSaver there's more money looking for good stories," Kronfeld said. "Our share market has a few of those. On a longer-term view, if you look at P/Es, a lot of those are pretty much in the upper quartiles. Most people are fairly reticent about Ryman Healthcare or Freightways because they're fully priced. But they're good companies - good sectors, good management."
Ryman, the retirement village operator, has gained 19 percent this year and Freightways is up 13 percent.
Companies on the NZX 50 are trading at a weighted average price-to-earnings ratio of 19.9 percent and have a weighted average gross yield of 5.5 percent, according to Forsyth Barr. A one-year term deposit is currently offering 3.31 percent, according to the interest.co.nz web site. KiwiSaver assets topped $40 billion this year as more New Zealanders save for their retirement.
Bringing up the rear is Metro Performance Glass, which has struggled to maintain gross margins and has fallen 46 percent year-to-date, and Fletcher Building, down 27 percent amid problems with major contracts in its construction division and the decision to dump its chief executive. Sky Network Television, which missed out on a merger with Vodafone and faces new competitors in the streaming content market, is down 37 percent.
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