NZSE-50 leaves old standard in its wake

By PAM GRAHAM

The new NZSE-50 gross index outpaced the NZSE-40 capital index it replaced on its first day yesterday, thanks to a key difference in its design.

The NZSE-50 counts dividends, while the old benchmark did not. Telecom, the market's largest stock, went ex-dividend yesterday, giving the new index an advantage over the old one. The two were even before the open and by day's end the NZSE-50 gross index was 5.27 points ahead at 1886.12, while the NZSE-40 capital index fell 1.66 points to 1879.195.

Turnover on day one of the New Zealand Stock Exchange's great leap forward was high for a Monday at $92 million, though speculators looking to turn a quick profit from the change were not evident.

Brokers said the smooth debut was achieved because the exchange backed off an original idea to halt the old index on the introduction of the new one, the market had plenty of notice and fund managers will take their time to change the index they use as a benchmark.

The new index also counts only "freely floating," or actively traded shares, reducing the weightings of companies that have large cornerstone shareholders like Air New Zealand, Sky TV and Ports of Auckland.

The market had anticipated the change, said Paul Smart, chief commercial officer at Ports of Auckland.

New entrants including Axa, Calan Healthcare, Capital Properties, Goodman Fielder, Hellaby Holdings, Hallenstein Glassons, Mainfreight, Michael Hill International, New Zealand Refining, Steel & Tube Holdings, Tourism New Zealand and Wrightson were now on the radar screen of more investors.

Bruce Sheppard, of the New Zealand Shareholders' Association, said there might be rises and falls in share prices for no apparent reason as a consequence of shifts by "index-hugging institutions", but "real investors do not buy indexes, they buy companies".

Fund managers generally supported the new index, but said its impact had been oversold.

The biggest so-called passive funds did not use the NZSE-40 capital index, while so-called active managers were often judged against the old NZSE-40 gross index which included dividends.

One active manager said he often went for small stocks outside the NZSE-40 precisely because he was trying to outperform it, therefore their inclusion made them less attractive. Also, the small companies now being included in the new benchmark had tiny weightings.

"It is good they have expanded the coverage, the little companies get more of the limelight," said one fund manager.

A spokesman for AMP, which has about $1 billion under management in New Zealand, said the company would slowly talk to clients about which index they preferred. Some clients might opt for a portfolio index of 50 stocks introduced today that had reduced weightings for larger companies.

Wayne Stechman, the New Zealand equities manager at Tower Asset Management, said any change to new indexes would be gradual.

The debut also occurred during the December balance date reporting season when there was plenty of information to influence investors. For Sky TV, the higher New Zealand dollar was reducing the cost of international programming, which countered the impact of a reduction in its weighting in the new index.