NZX 50 soars to fresh record in global equities rally and hunt for yield

Friday 23rd January 2015

The NZX 50 Index climbed to a fresh high as investors hunt for income paying investments on the prospect of interest rates staying lower for longer, as the European Central Bank embarks on a sovereign debt buying programme.

Overnight the ECB confirmed it will launch a bigger-than-expected 60 billion euro a month bond purchase programme to stimulate the region's economy and boost inflation. It follows the US Federal Reserve's own quantitative easing programme, which wrapped up last year and saw equity markets flooded with cash. Investors bought dividend paying stocks on anticipation global interest rates will be lower for longer.

The NZX 50 Index jumped up some 66 points, or 1.2 percent, to a record 5712.661. It recently traded at 5699.891. Markets across Asia also advanced, with Japan's Nikkei 225 Index climbing 1 percent while Australia's S&P/ASX 200 Index surged 1.2 percent in afternoon trading.

"We're following the offshore markets, we have Australia up 1 percent as well," said Grant Williamson, a director at Hamilton Hindin Greene. "Europe is on the agenda at the moment, and what they might do. Investors will be hoping what turned out to be a very successful policy in the United States will turn Europe around as well.

"You normally see a reduction in interest rates, so you see investors looking for a home that offers the best growth and yield prospects," Williamson said.

Overall, the NZX 50 Index has advanced 2.5 percent since the start of the year, outpacing the ASX benchmark's 1.3 percent rise and the Nikkei 225 Index's 0.2 percent increase, as investors are lured to the relative high yield of the local bourse and the outlook for the New Zealand economy.

Meanwhile, over the past year, stocks held for their reliable dividend stream have climbed, as investors chased yield investments. The Property Index has gained some 27 percent, while the Energy Index has soared 52 percent, also fuelled in part by a post-election bounce which saw the removal of any further regulation in the power market.

The market is starting to reach full valuation, and next month's reporting season will need to justify the recent gains, Williamson said.

"Whether the market has got too many more legs, it's difficult to say but there's still some pockets or areas which still look good value," Williamson said. "We will see a correction at some stage along the way, there's no doubt about that, nothing goes up in a straight line. The good thing with most of the local companies is they have very solid fundamentals."

Yield stocks paced the benchmark index's gains today. Genesis Energy advanced 2.8 percent to $2.205. Meridian Energy gained 1.6 percent to $1.88. MightyRiverPower climbed 2.1 percent to $3.40. Spark New Zealand, formerly Telecom Corp, rose 2.5 percent to $3.295.Contact Energy increased 2 percent to $6.78.

BusinessDesk.co.nz

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