NZX50 powers on with record-setting run

SkyCity Entertainment shares have soared. Photo / Richard Robinson

The New Zealand share market has continued its record-breaking run, with the NZX50 Index hitting its highest ever point as investors take their lead from strong overseas markets and as equities continue to enjoy a significant advantage over fixed-interest investments.

High yield stocks - particularly the newly listed power generators, have rallied strongly since the National Party's emphatic win in the September election removed the threat posed by the Labour Party and the Greens of intervention in the electricity market.

Mighty River Power - the first power company to be partially privatised by the Government under its mixed ownership model, and a stock that struggled in its early days as a listed entity, has rallied by 14.77 per cent in the past 30 days, closing yesterday at $3.03 - well clear of its $2.50 May 2013 issue price.

Another high-dividend yielder, SkyCity Entertainment, has rallied by 13.73 per cent over the same period, closing at $4.06.

Genesis Energy has rallied by 13.59 per cent, closing at $2.21. Another slow starter, Meridian Energy, has rallied by 13 per cent over the past month, the partly paid shares finishing at $1.74.

The NZX50 ended at 5470.339, up 51.35 points or 0.95 per cent from Friday's close, continuing what has been a golden age for equities over the past five years.

The index, unlike equivalent indices in overseas markets, is a gross index which takes into account dividend payment to more accurately reflect the higher proportion of dividend-paying companies on New Zealand share market, relative to other markets.

Excluding dividend payments, the market was 9.3 per cent short of its previous high, hit in May 2007, when the NZX all capital index hit 1216.799, said Mark Lister, head of private wealth research at Craigs Investment Partners.

"Still, the market has had a bloody good run," Lister said. "There are no two ways about it."

Not all the gains came from high yielders. Software company Diligent - a growth stock - has gained 13.3 per cent in the past 30 days.

Rises have not been across the board. Fletcher Building, New Zealand's largest listed company, has dropped by 1.4 per cent over the past 30 days.

The United States share market, the key scene-setter for all equities markets around the world, ended at another record on Friday on the back of news that US unemployment fell to 5.8 per cent - its lowest point since July 2008.

The Standard & Poor's 500 index edged ahead by 0.71 of a point to end at 2031.92 and the Dow Jones industrial average gained 19.46 points, or 0.1 per cent, to 17,573.93 - both record highs.

Investment "by default", with other fixed-interest options not offering sufficient returns for income-seeking investors, has been a big part of the market's movements, particularly in this low-inflation, low interest-rate environment.

With bank deposits offering just 4 per cent and the share market offering an average dividend yield of about 6 per cent, investors were voting with their feet.

"So by default, people have ended up in the share market because dividend yields of 6 per cent looks pretty good compared with everything else out there and our companies continue to perform well," Lister said.

Analysts said New Zealand companies generally had strong balance sheets, with good earnings growth, and the economy had hit a sweet spot - strong but with very little inflation.

"Over the last three or four years the attraction of high-dividend yields has been a big part of the rally because they have been too good to pass up," Lister said.

Andrew Bascand, managing director and portfolio manager at Harbour Asset Management, said most of the growth in the US market was coming from stronger earnings.

"There is an expectation that the US economy will continue to grow," Bascand said. "US labour market growth is strong and that will generate good consumption growth," he said.

"Many investors are chasing yield. This is not a mistake. This is what central banks want - they want people to take risk because by taking risk they encourage companies to invest in labour and capital."

Bascand said the New Zealand market looked expensive, relative to history, but he said it was not "dramatically" overvalued.

The market on average had a price-to-earnings multiple of about 17 to 18 times compared with a long-term average of 14.

The New Zealand market is expected to have earnings growth of over 7.5 per cent in the coming year, compared with the long-run average of about 6 per cent.