New Zealand's benchmark stock index is heading for its smallest annual gain in four years, in a year led by low interest rates rather than strong company news.
The benchmark NZX 50 Index rose 11.1 percent so far this year, slowing from last year's 18 percent gain. In 2013, the market grew 16 percent; in 2012, 25 percent.
"Overall share prices have been driven by the low interest rate environment more than earnings growth from companies," said Grant Williamson, director at Hamilton Hindin Greene. "Company earnings didn't show huge growth this year, and that's why share prices are not quite up there - though still very acceptable - after four very good years in a row. The market will need to see earnings growth in 2016 to see share prices perform."
Late runs ensured A2 Milk Co and Chorus were among the top 10 performers on the benchmark index in 2015. Milk marketer A2 Milk soared 197 percent to trade recently at $1.72 as strong demand for infant formula in China and sales in Australian, some of which has funnelled into China via the 'grey market', drove up dairy related stocks across the Tasman.
Chorus is heading for a 43 percent annual gain, having surged this month after the Commerce Commission ruled that the network operator can raise the regulated price it charges for access to its copper lines, prompting the company to lift its earnings guidance. It last traded at $3.82.
Weaker NZ dollar
The weaker New Zealand dollar, which has fallen about 12 percent in the past 12 months to trade recently at at 68.05 US cents, has been lucrative for companies with international currency exposure, who have gained significantly when translating overseas income back into the local currency, Williamson said.
New Zealand Refining, which owns the nation's only oil refinery, climbed 67 percent in 2015 to traded recently at $3.69, having returned to profit in its first half as a weaker kiwi dollar and a sharp drop in oil prices helped widen the company's refining margin. Upgrades at the refinery were expected to further widen its margins, it said in October.
Nuplex Industries is another to benefit from a weaker dollar as it sells its specialty resins across the globe. Its shares have gained 58 percent this year and reached $4.71, the highest since early 2009. In November, the company said 2016 earnings would rise as much as 22 percent as it benefits from last year's restructuring, accelerating growth in Asia, and a weaker kiwi dollar.
Ebos Group, which gets 81 percent of income in Australia, climbed 48 percent in 2015. In October, chief executive Patrick Davies told shareholders at their annual meeting that the animal and healthcare products company was "confident of delivering another year of double digit, constant currency profit growth" in 2016 as it continues to make acquisitions.
Weaker dollar helps tourism
The decline in the New Zealand dollar also helped make New Zealand a better priced holiday destination, helping drive up Auckland International Airport shares by 27 percent this year, and Air New Zealand by 18 percent.
The "really low" New Zealand dollar has strengthened tourism, and in turn benefited companies in the sector, Williamson said.
The kiwi dollar has declined against a strengthening US dollar, backed by the long-anticipated hike in interest rates by the Federal Reserve, the first in almost a decade. New Zealand's central bank cut its official cash rate a quarter point to 2.5 percent this month, in what may be the last such move before a gradual tightening late in 2016.
"When interest rates start going up it certainly puts the brakes on shares, and you'll probably see that everywhere," said Mark Lister, head of private wealth research at Craigs Investment Partners. "The last four or five years have been very strong in New Zealand, as they have elsewhere, and I think the next couple of years the pace of gains will certainly be slower."
The best and worst performing companies
The worst performer on the benchmark has been Orion Health Group, one of 2014's IPOs, which has fallen 46 percent this year to $3.13. Orion reported a wider first-half loss of $27 million in November, after a $60.8 million loss for the year to March 31.
Sky Network Television has dropped 26 percent this year to $4.47, as the company battles to retain customers against the rise of on-demand streaming services such as Netflix.
Across the S&P/NZX All Index, Trilogy International is likely to top the market, climbing 303 percent to $2.90. The skincare and home fragrance company more than tripled first-half profit to $3.2 million as it benefited from growth across all its markets. Manuka honey health products maker Comvita rose 123 percent to $8.25.
At the bottom of the index is shell company TRS Investments, which has fallen 80 percent to 0.1 cents. In May, file storage and encryption firm Mega aborted plans to list on the NZX via TRS after a series of delays in gaining approvals.
The stock market has seen four IPOs this year, compared to the 12 main board IPOs in 2014, and six new companies have listed, down from 16. Of those six, one rose this year, two fell, two were unchanged and one - AFT Pharmaceuticals - listed yesterday, gaining 11 percent on its first trades from its $2.80 IPO price.
Tim Bennett, chief executive of NZX said this slowdown was a "worrying sign we are starting to lose momentum," and New Zealand should have had six to eight IPOs this year.
Hamilton Hindin Greene's Williamson said he still predicts an upward move in the local market for 2016, especially with the growth of KiwiSaver funds, but it is "a little concerning and disappointing" that no large companies are planning to come into the stock market next year.
"It was a really quiet IPO year this year. In a low interest rate environment, it's relatively easy to borrow money from the bank rather than raise money from shareholders," he said.
Of 2014's 12 IPOs, just four are trading above their IPO price - Vista Group International, Gentrack Group, Scales Corp, and Genesis Energy, though Genesis's stock is currently down 11.5 percent for the year.
The worst performer of 2014's IPOs has been Intueri Education Group, which has fallen 78 percent this year to 57 cents, making it the second-worst performer across the All Index. The shares sold in an initial public offering at $2.35. The company has cut its full-year earnings guidance twice this year, and missed its prospectus forecast for 2014 earnings, with net profit of $4 million compared with a projection of $7.9 million.