Money Editor for NZ Herald

Stock Takes: War, what war?

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The tense situation in Ukraine has had no effect on the New Zealand stock market, which reached new highs this week. Photo / AP
The tense situation in Ukraine has had no effect on the New Zealand stock market, which reached new highs this week. Photo / AP

War, what war?

The strife between Russia and the Ukraine has resulted in a tough week for European stock markets but the New Zealand bourse has taken no notice of the situation and hit new highs.

The UK's FTSE 100, Euro Stoxx 50 and Germany's DAX index all fell on Monday amid increased concern about the growing crisis in Ukraine and the potential for war with Russia.

But the NZX50 swept past 5000 points and has continued to break records since then. Yesterday it closed up 0.8 per cent at 5114.79.

"With the exception of the US, which has powered ahead in recent times to genuine all-times highs and also the UK market, which has only just regained its 2007 peak, many others are well below those levels."
Craig Lister, Craigs Investment Partners

Market players said New Zealand's strong economy was buffering it against the world's worries and the recent reporting season had been positive in backing up growth projections.

But not all are calling the record highs a record. Mark Lister, head of private wealth research at Craigs Investment Partners, said when dividends were taken out of the picture the New Zealand market was still 13.5 per cent below the levels reached in 2007.
"It is far from being at an all-time high."

Unlike most global indices the NZX50 takes dividends and share price growth into account. But Lister points out that New Zealand is not alone in having yet to recover to pre-global financial crisis levels.

"This is the case for most markets around the world. With the exception of the US, which has powered ahead in recent times to genuine all-times highs and also the UK market, which has only just regained its 2007 peak, many others are well below those levels."

Australia is still 21 per cent below its 2007 peak, while Europe and emerging market shares are more than 15 per cent off their highs.

Good earnings

Analysts are pointing to the February reporting season as a good one with few surprises. Harbour Asset Management said median reported earnings were broadly in line with expectations although the average as a whole was dragged down by some stocks.

" ... for the market as a whole aggregate profits are about 1.5 per cent lower than expected because Telecom, Contact, Trade Me, Sky City and Nuplex pulled down more positive results that came from Sky TV, Meridian, Auckland International Airport and a number of small companies."

Harbour said the outlooks for 2014 earnings had also been evenly balanced.

"New Zealand companies still have plenty of margin upside given the strong growth outlook."

Election barometer

Confidence in National coming out on top at the election seems to have spurred a flurry of power company share buying.

Meridian Energy was the most traded stock on the NZX on Wednesday with 8.17 million shares changing hands - well above its 30-day trading average of 3.08 million share.

Mighty River Power also had a busy day on Wednesday trading 6.48 million shares compared to its 30-day trading average of 1.1 million.

Phillip Anderson, an analyst with Devon Funds Management, said there had been several broker notes released in the last few days pointing to recent political polls and a stronger likelihood of National getting back into Government.

Based on previous calculations of the election outcome the energy company shares were now looking cheap. Anderson said the stocks were likely to remain sensitive to polling results leading up to the vote.

Genesis effect

One factor which could have a negative impact on already listed power companies is the Genesis Energy float.

Investors already own a high proportion of power companies and if they are to buy shares in Genesis there could be some selling of Mighty River Power, Meridian and Contact Energy shares to make room for the latest addition to the stock exchange.

Sources said Mighty River was most likely to suffer from selling as both Contact and Meridian were seen as being more favoured stocks.

Shares in Mighty River Power have been on the comeback trail of late. After falling to a low of $1.945 on January 30 they bounced back to around $2.06, although yesterday they closed down 0.5 per cent at $2.055.

Date set

Market sources say April 17 has been set as the float date for Genesis Energy with the book build to be held on March 27.

"There is a strong belief that Genesis is going to come with a very cheap price tag and a big dividend yield."
Tamsyn Parker

Genesis management, First NZ Capital and UBS analysts and investment bankers have already been doing the rounds talking to the investment industry.

Fund managers are said to already have their hands on a draft prospectus giving them at least three weeks to mull over how much they are prepared to pay for the Government's latest offering.

One fund manager said he believed Genesis could be the "ugly duckling" which turns out to be the swan.

There is a strong belief that Genesis is going to come with a very cheap price tag and a big dividend yield.

Local institutional investors believe there is likely to be low interest from retail investors and international institutions leaving them in a strong bargaining position.

Only time will tell if this is the case.

Xero goes global

Shares in Xero hit another new high yesterday after an announcement that the technology company will be included in a global index for the first time.

Xero shares rose in morning trading after the FTSE Group - a company which calculates global indices - included Xero in its FTSE Global Equity index Asia excluding Japan.

The indices are used by fund managers around the world to benchmark their performances. Funds that track that index will have to include Xero in their portfolios by close of business on March 21.

Mark Warminger, a fund manager at Milford Asset Management, said that meant around 1.8 million of Xero's 127 million shares on issue would need to be bought globally.

On a typical day around 100,000 shares in Xero are traded.

Shares in the accountancy software company closed up 4.4 per cent at $44.49 yesterday, valuing the company at $5.68 billion.

The company has yet to make a profit. Its previous closing high was $43.19 on January 22.

Crowd funding

With the Government giving the go-ahead to equity crowd-funding the door has opened to small companies wanting to sell shares and raise money from the public through crowd-funding websites.

Equity crowd-funding won't be possible until after April 1 when the new Financial Markets Conduct Act comes into force but the in and outs of how it will work have already been worked through for investors.

According to the Financial Markets Authority, which is in charge of licensing the crowd-funding platforms, shareholders will be able to buy and sell shares in off-market trades at any time unless the company has restrictions on trading.

Crowd-funding platforms will be able to operate secondary markets for trading if they are licensed to do so or trading may be done via another party like the NZX.

Shareholders will have the right to receive an annual report and companies will have to have their financial statements audited because they are offering shares to the public.

Additional disclosure obligations will likely also apply if the companies are listed on a licensed financial product market.

- NZ Herald

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Money Editor for NZ Herald

Tamsyn Parker is the NZ Herald's Money Editor. A business journalist for ten years, she has worked in the UK and NZ for the New Zealand Herald, the National Business Review and a specialist publication on investment products for financial advisors. She is passionate about helping readers learn more about to make their money work for them.

Read more by Tamsyn Parker

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