Sharemarket's NZX-50 index nears 10,000, but something's missing

The share market has nearly doubled in value in five years, but something's missing. Photo/File.

As the share market nears 10,000 points on the S&P NZX-50 index, one thing is missing: Hoopla.

At that level, the index would have almost doubled since early in 2014, yet the mood of the market remains sombre.

Unlike previous share market rallies, onwards and upwards has been greeted with little fanfare.

Instead, fund managers keep muttering about share prices being over-valued. For them, finding value in this market can be tricky.

"Most people are trying to figure out why it's here," Rickey Ward, New Zealand equity manager at JB Were said.

Fund managers are now faced with elevated share price multiples compared with what they have had to pay, historically.

The index reached all time high of 9958.35 earlier this month, representing a gain of about 12 per cent since the start of the year.

At yesterday's close of xx,xxxx, the index is within striking distance of 10,000, but Ward said whether the market pushes on was open to question.

"I think that it will come down to whether companies can continue the rate of earnings per share growth," he said.

If we don't get any shocks around the world, and if interest rates remain low, or reduce domestically in the next 12 months, then a push higher was possible.

Low interest rates will provide support for income stocks, "and the local market is full of those".

"Then there is a2 Milk - which has helped drive our market up - probably for the last two or three years - on earnings momentum.

"As long as that continues, then you will see the share price go higher, then that will drive the rest of the market higher, because of its dominance on the index, so there are a number of drivers that could help it get there," he said.

"When you go through the check sheet as to what drives equity markets, then there are a number of ticks in the boxes that suggest you should be invested," Ward said.

"The only issue is the price that you have to pay - people are paying a higher price for many companies than they have done in the past - it's made people more reserved."

Ward said much of the market's movement looks like a rally by default, because of very low interest rate environment.

"It does feel like its been brought on by a lack of alternatives."

'Begrudged' rally

Harbour Asset Management Shane Solly said three factors had driven the market higher - relatively high dividend yields and a lack of new share issues had helped drive the market higher.

Fund managers point out that the benchmark index - the NZX50 gross index, which measures both capital appreciation together with dividends - can make the market look more elevated than others.

"The rally in the last 12 months has actually been quite begrudged," Solly said.

"There is a lot of uncertainty from a macro perspective, growth is slowing, and geopolitical tensions are rising," he said.

Local stock prices relative to earnings hit a 15 year high early this moth of
just under 22 times on April 5.

Solly said there was "work to be done" before the index breaches 10,000.