Caroline Ritchie: Domestic market seems to be turning a corner

The NZX, having suffered a period of invisibility over the last couple of years, has lately seen something of a revival.
Lagging offshore markets in terms of quarterly returns and consequently getting shunned by investors, our domestic market seems to be turning a corner.
There are several reasons. Decent reports coming out from the more defensive companies. Growth, even, despite the recession. And, finally, the realisation that current bank interest rates won't do you any favours. This last aspect is driving the rush for yields. Serious yield-chasing in the bond market has been going on for ages, but the lag taken to translate this behaviour into the equities market has been long. On top of this, there is the added lick and a promise of the floating of minority stakes in four SOEs. Although the topic is a politically tenacious one, and not set in stone until after the election, it has lit a small fire underneath the Kiwi sharemarket.
During the last three years decent initial public offerings have been scarce. Investors in this country who read widely will be seeing the successes of offshore IPOs. Many are excited on the news that minority stakes of national utility companies will be up for grabs; and on a preferential basis for New Zealanders. A lot of the optimism around these SOE floats may already be priced in, but hey, it is market optimism, and we'll take that where we find it, thank you.
Investment advisers get asked a lot of questions where the answers are not possible to predict with 100 per cent certainty. Will the price go up? Will the price go down? It can, at times, be like manning a psychic hotline where people phone up and then don't say anything. However, far from that voodoo image is actually a team of professional people working rather hard on the facts and balance of probabilities in the landscape of investment. Now the horizon looks a little brighter for certain homegrown companies and from a technical standpoint the charts agree with the fundamentals. Politics in an election year will understandably have a little something to do with the trajectory of our market in this year and beyond. At this point, most businesses are betting on blue. NZX volumes are up, with the NZ50G index now regularly breaking a daily trade value turnover of $120 million. Good for us! (Although at US$6 billion of stock dealt per day - more than 60 times the turnover of our entire market - Apple Inc is still making us look tiny). The point is we can do it. Is it a revival? Yes, says the conservative and intelligent investor. Game on.
Caroline Ritchie is an NZX Advisor for Forsyth Barr in Napier and holds an NZX Diploma, BCom and BSc. For sharemarket advice contact her on (06) 8353111 or caroline.ritchie@forbar.co.nz. The comments in this note are for general information purposes only. This article is not intended to constitute investment advice under the Securities Markets Act 1988. If you wish to receive specific investment advice, please contact your Investment Advisor. Disclosure Statements for Forsyth Barr and any of its Investment Advisers are available on request and free of charge.