Stocks flat but future looks promising

The sharemarket managed to finish near steady in uninspiring trading after a negative start yesterday. However, banks and brokerage houses polled by Reuters on average forecast a gradual rise in the NZSE-40 Capital Index to 2240 at the end of the year.

The range of expectations in the poll of eight finance houses was 2200 to 2300.

The NZSE-40 Index closed yesterday at 2098.32, down 2.49 points.

"We currently have the market undervalued by about 7 per cent. We would see it being roughly about 2250 by the year end, another 150 basis points," said Rob Bode, Credit Suisse First Boston's head of research in New Zealand.

"So we see a narrowing of the gap to valuation over the course of this year. Although just with ongoing earnings growth, we would still expect it probably to still be a little bit undervalued towards the end of this year."

Analysts agreed that Telecom and Fletcher Energy price movements would be key influences on the index. Telecom dominates the NZSE-40 Index with a 27 per cent weighting while FCL Energy is third largest with a 5 per cent weighting.

"If you assume that Telecom is re-rated close to its fair value and a satisfactory outcome in respect of the Fletcher camp, I could see the index higher than where it is at the moment," said John Cairns, head of research at Cavill White Securities.

Fair market fair value for the stock is seen at around 810c a share.

Analysts agreed that the global tightening cycle seemed to be coming to an end, but some said the interest rate story would be broadly neutral for the sharemarket.

Mr Bode said: "We see investors returning to equities. There's more confidence in equities now that interest rates appear to have peaked. So, we see a lot more interest from retail investors, we see institutional reallocations back into equities, and we still have a reasonably good growth outlook."

The tourism sector was seen doing particularly well, and sectors benefiting from the lower dollar such as Fisher & Paykel.

Although New Zealand's growth rate was moderating, there was enough strength to be supportive of reasonable earnings growth, analysts said.

Merill Lynch outlined the index track over next year, and saw it rising to 2150 at the end of September; 2200 at the end of December; and 2250 by June 2001.

In yesterday's trading, the overall tone was flat. "I think global markets are pretty flat. Northern Hemisphere summer holidays are in full swing and markets have become quite quiet around the world." said John Rattray at Ord Minnett Securities.

"Telecom is struggling but finished well off their lows (down 9c at 721). Overall sentiment is remaining quite difficult for Telecom. The weakness today is probably attributed to the confirmation by the company that it is looking to cut its dividend and the effect that has on retail investors principally," he said.

"Fletcher Energy, which has been the star stock in recent times, is backing off a little, hit possibly because of the Eldercare insider trading action over Southern Petroleum. Although that is reasonably minor in the overall scheme of things it's perhaps engendered a fear that process might hold up an ultimate sale of the Fletcher Energy division," Mr Rattray added.

On turnover of $16 million Fletcher Energy closed down 5c at 715 for a 50c, or 7 per cent, loss over the past five trading days. Fisher and Paykel grew 15c to 720. Telstra head shares rose 20c to 915 and its receipts 17c to 530.

UnitedNetworks rose 10c to a 10-month high of 630, after saying it planned an ultra high bandwidth telecommunications cable network in Auckland and Wellington.

Nufarm expanded 13c to 438, and The Warehouse 3c to 556.

- NZPA