The New Zealand sharemarket continues to enjoy its time in the sun, with the benchmark S&P/NZX 50 Index this week pushing through the 7000-point barrier to hit its highest level ever, but for investors the question remains: How long can this last?
Since May 2011 the market index has piled on an average increase of 14.6 per cent a year, to the point where it is now almost double where it was in May 2011.
But before investors get too carried away, fund managers point to the reasons behind that extraordinary performance. The NZX-listed companies are in reasonable shape, and they generally have strong balance sheets.
New Zealand's economic growth has been better than many expected and the current low interest rate environment has helped, but the overwhelming influence on the market over the last few years has been the sheer weight of cash trying to find a home.
US 10-year Treasuries are the benchmark for fund managers, and the bottom line is that yields have been abnormally low since the 2007-8 Global Financial Crisis.
A graph of the US 10-year bond yield shows that conditions have by no means been normal since the GFC. They remain well below 2 per cent, which has forced investors to look further afield and for many New Zealand, with its high proportion of dividend paying stocks, is a logical port of call.
"The global chase for yields has pushed our market along because a bunch of our companies rank well," says Harbour Asset Management portfolio manager and analyst Shane Solly. "They are good businesses with good balance sheets and they throw off a good yield, but valuations are pretty full."
The possible risks for the market would be a slowdown in world growth and rising world interest rates.
"It's been our time in the sun, that's for sure," he said. "I'm not saying its over, but it does not leave a lot of room for disappointment."
Invariably the comparisons are starting to emerge with the sharemarket crash of 1987, when New Zealand investors well and truly had the stuffing knocked out of them and which took the country several years to recover from.
Salt Funds Management managing director Matt Goodson says the market is certainly fully priced, but he says the market does not seem to have the same kind of excitement that has featured in previous bull runs.
"The sharemarket is expensive by any measure," Goodson told Liam Dann on the Economy Hub on the Herald's website. "I think there are a number of bond refugees that can't get a return anywhere else," he says. "So it doesn't feel like a bubble - it doesn't have the euphoria of 1986-87 or the Nasdaq boom [of 1997-2000] - but it is certainly expensive."
NZ the outlier
The local market is even faring better than other markets. America's S&P 100 index is back to where it was this time last year while the local market has gained by a staggering 19.5 per cent per cent over the same period.
"So in that sense New Zealand is looking like quite the outlier because we continue to push on," says JB Were's chief investment officer Bernard Doyle. "From my perspective, the key variable for equities is still US 10-year yields being well below 2 per cent.
"That's driving people to look at other sources of income and when you are looking for other sources of income, New Zealand equities don't look too bad, even after the run that they have had," he says.
"It doesn't make sense in terms of the speed of this ascent but in relative terms, it is a lot easier to understand why [we] are such a popular market."
Trilogy share price on a roll
Trilogy International's share price has been on a roll.
The company is the parent company for two consumer brands, ECOYA and Trilogy, which create luxury home fragrances and specialty natural skincare products respectively.
The stock finished 2015 at $2.83 and closed yesterday at $4.26, having piled on a four-fold increase from $1.00 a share this time last year.
This week, Trilogy said it had acquired a 25 per cent stake in Chilean-based rosehip producer Forestal Casino. Trilogy said the acquisition would deliver supply certainty of certified organic rosehip oil while enabling Forestal Casino to expand. In addition, the company announced a 49 per cent increase in revenue for the 12 months to March 31. It reported a strong performance across each of the segments and international markets.
The company, which is just under half owned by The Business Bakery, listed on the NZX in May 2010.
Trilogy's chairman Geoff Ross said the company gained further momentum from its brands and its overall business during the year. Ross said: "The strategies for our Trilogy and Ecoya products continued to deliver solid growth for Trilogy, which we expect to continue."