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NZX winner & losers of 2011: big boys struggle, small caps bloom

Thursday 22nd December 2011

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Manufacturers, builders and retailers were among the biggest decliners on the New Zealand stock exchange in 2011, although the local market’s NZX 50 Index fared less poorly than many other global equity market benchmarks.

The NZX50 is heading for a decline of about 3 percent in 2011, the first annual drop since the start of the global financial crisis in 2008.

So far this year, Australia’s S&P/ASX 200 Index has fallen 12 percent, the Japan Nikkei 225 Index has dropped 18 percent and the UK’s FTSE 100 Index has fallen about 9 percent.

Heading into 2011, companies faced tepid consumer spending, a weak housing market, finance company failures, earthquakes and snowstorms. As the year progressed, global investors grew increasingly pessimistic when Europe’s financial woes worsened and euro-zone leaders dawdled on efforts to rein in the region’s ballooning debt.

Adding to global gloom, the US lost its AAA credit rating and the American Congress argued over the federal budget.

“It has been a year of extremes,” said John Norling, director of wealth management research at First NZ Capital. “It is easy to think negatively when the markets are down but it is pretty evenly split.”

Annual rises and falls were evenly split among the 48 stocks that have been in the NZX 50 Index since at least Dec. 22 last year. Finance company Heartland New Zealand joined the benchmark index in June and Chorus, the network company spun off from Telecom, began trading on the NZX last month.

Fletcher Building, the biggest company on the exchange, dropped 23 percent in a year when further earthquakes delayed the expected fillip from rebuilding Christchurch, a massive project for which the company has been named lead manager.

Fletcher shares tumbled in October wiping more than half a billion dollars off the company’s market value, after it said earnings growth would stall this financial year, with no signs of pick up in residential building in Australia or New Zealand.

Natural disasters have tested the insurance sector, with shares in Tower falling 28 percent and Christchurch-based rival AMI Insurance need a government bailout while it sought new capital.

Quite another story is shares in Port of Tauranga, New Zealand’s biggest export hub, which hit a record high of $10.40 on Dec. 7 and have jumped 30 percent this year. Underpinning the stock was the decision by Maersk, the biggest shipping company visiting New Zealand, to shift its Southern Star container service to Tauranga from Ports of Auckland.

“They have been bubbling under the surface,” said Craig Brown, senior investment analyst at One Path New Zealand. “It is very well run so it makes sense - its location, the ease of contact for customers and shipping lines.”

Freight companies also proved a good bet in 2011. Mainfreight, which has grown into a global logistics and transport group, is up 25 percent, while courier and information management firm Freightways has gained 13 percent.

Yet exporters of manufactured goods have been among the worst performers amid slowing demand in global markets and a relatively strong New Zealand dollar, which touched a post-float high of 88.40 US cents at the start of August./p>

Nuplex Industries, the specialty chemicals maker, has tumbled 39 percent this year. Former stock-exchange darling Rakon, which makes crystal oscillators used in smart phones and navigation systems, slumped by about two-thirds to 47 cents, and tapware-maker Methven has shed 40 percent of its value.

Whitegoods manufacturer Fisher & Paykel Appliances has dropped 39 percent and Fisher & Paykel Healthcare, which makes respirators and breathing devices, has dropped 23 percent.

Retailers have fallen from grace as kiwis focused on repaying debt rather than borrowing more to fuel their spending. Pumpkin Patch, the children’s clothing chain and another former favourite of investors, tumbled 62 percent. Clothing retailer Hallenstein Glasson Holdings is down 18 percent and Warehouse Group, the biggest retailer on the exchange, has fallen 11 percent.

“Consumers are keeping their hands in their pockets – their arms have gotten shorter and people are saving not spending,” said Shane Solly, portfolio manager at Mint Asset Management. Outdoor equipment retailer Kathmandu defied the odds, which Solly put down to a company “benefitting from people getting back to basics.” The stock has climbed 24 percent this year.

Retailers have also had to contend with changes in consumer spending habits, with more online spending, which has created challenges for companies only invested in bricks and mortar stores. “The impact of online retailing always had the potential to be an issue but has got some serious legs to it now,” said Craig Brown, senior investment analyst at One Path New Zealand. Retailers need to focus on meeting their customers’ needs, he said.

Wellington’s loss-making up-market department store, Kirkcaldie and Stains, ended the year subject to an unorthodox purchase offer from a group of Wellington investors, amid questions about its long term viability. Shifting retail habits are underlined by the initial public offering and listing of Trade Me, New Zealand’s biggest auction website, which has climbed 10 percent from its listing price on Dec.16.

The biggest gainers were among small cap stocks. Diligent, which provides IT services for boards of directors, has soared 172 percent as it heads toward profitability. A2 Corp, which markets milk with a protein variant said to have health benefits, disproved doubters by changing its business strategy away from licensing its intellectual property. The stock has jumped 150 percent this year.

Comvita, which makes products marketed on the health benefits of manuka honey, has gained 69 percent, driven by a failed takeover offer from Cerebos New Zealand in October.

The NZX benefitted from the listing of Chorus after Telecom shareholders agreed to carve the company in two, letting it shed regulatory burdens and hitching its network business to a billion dollar-plus subsidy to build a national broadband network. Telecom shares, adjusted for the spin off, have gained 21 percent this year, while Chorus shares are currently down 6 percent since listing last month.

Investors are anticipating a more vibrant market starting in 2012. Prime Minister John Key has flagged Mighty River Power as the first state-owned enterprise to be sold down under the so-called mixed ownership model. Genesis Energy, Meridian Energy and Solid Energy are to follow, along with the partial sell-down of already-listed Air New Zealand.

The sales would add $4.8 billion to the NZX 50’s free float market capitalization, according to an NZX estimate. Shares of NZX itself have jumped 50 percent this year.

First NZ Capital’s Norling said the US presidential election and concerns in Europe will dominate equity markets in 2012. With the European leaders struggling to find a suitable solution to their fiscal policy, “the pressure is on.” He said his comments were general in nature, given regulatory restrictions on advisers.

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