Thursday 20th April 2000
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The sharemarket has taken a battering as the repercussions of Nasdaq selloff shake investor confidence. The NZSE top-40 capital index has held up reasonably well, seeking support around 2000-2050. The index is biased toward old-economy stocks, but is still subject to the dominant weighting of new- economy Telecom.
Large-cap index performance will hinge on how overseas investors perceive Telecom's prospects as an NE company. At least the firm has some earnings to point to and America Online as a partner with its AAPT investment.
The real bloodbath occurring on the local sharemarket is evidenced in the NZSE smaller companies capital index (SCI). The plug seems to have been pulled on the SCI, with values dropping to 5200 and suggesting further subsidence to marked support at 5000. This weakness is of some concern, because the SCI is mainly the preserve of local investors, and its tumble might prefigure a domestic loss of business confidence.
Interest rates continue to edge up locally, which impinges on how attractive share dividends will appear. Major listings appear flat to falling overall, with some exceptions.
Telecom has retreated to support at the 900cps range and Carter Holt Harvey has withered to below 180cps. By contrast, the Fletcher letter stocks are generally firmer in the face of the Norske Skog deal for the takeover of Paper in July but will have limited upside in the lead-up. Air New Zealand shares have moved up as a deal draws nigh to let expatriate major shareholder Brierley Investments off the hook, while Lion Nathan looks as to be straining to better 380cps.
New-economy shares are a mixed lot. An earner with a track record like Sky TV has slipped a bit to earlier support at 450cps, while Advantage Group, vulnerable from ramping itself somewhat, has taken a hard hit but rebounded swiftly from 400cps. Unsung new-economy hero Baycorp eased from 1200cps to 1050cps but will have plenty of business which-
ever way the economy heads.
New-economy investment play IT Capital has been slogged, but was already below earlier peaks reached well before the Nasdaq packed up.
In some ways the new-economy status of stocks is a red herring in the debate over valuations. It is not new-economy status as such that is essential but the more conventional categorisations of whether a company is a venture capital exercise or an established profit centre.
A parallel can be drawn with mining stocks: there are producers and explorers, whose shares behave differently. What we have seen in the past with mining stock speculation cycles is recurring with new-economy stocks. New-economy equivalents of mining producers will pick up again, but new-economy versions of mineral explorers could take years to recover, if ever.
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