Business 2000: Year of big disappointments on the sharemarket

The large firms caused investors considerable grief, in contrast to small companies, writes GEOFF SENESCALL.

The new millennium has heralded an exodus of some of this country's big companies overseas.

In the past year, Brierley Investments took its head office to Singapore in a bid to reinvent itself and Fletcher Challenge moved to break itself up.

Fletcher has already sold its largest division, Fletcher Paper, to Norway's Norske Skog. Its energy division is under offer from Royal Dutch Shell and the remaining forests and building divisions sit as likely takeover targets.

Lion Nathan, another former top-five company, also shifted last year - to Australia, where it now gets a large part of its earnings.

Fernz, a top-10 company, also moved across the Ditch.

But while there is an air of disappointment about the losses to this country's corporate landscape, it has been the large stocks that have caused the most grief on the New Zealand market.

The likes of Brierley and Fletcher have been significant laggards on the local bourse over the years.

Added to the list of underperforming leaders are the likes of Carter Holt Harvey, Air New Zealand and Contact Energy.

Keeping the market from oblivion has been Telecom, which has been the bedrock of NZ indices since it listed in July 1991.

But even Telecom, which makes up around a quarter of the index, has now lost its lustre. Its share price has halved in the past year.

Jason Todd of JP Morgan (formerly Ord Minnett) has plotted Telecom's performance against the NZSE-40 since it listed.

Excluding Telecom from the NZSE-40 over its nine-year life, the index would be 11 per cent lower than it is today, he said.

Turning the clock back a year, to when Telecom was trading around its highs of $9.80 a share, its impact would have been much larger. Without Telecom, the index would have been 24 per cent lower at the end of 1999.

Sitting at $4.98c, Telecom is now trading around seven-year lows.

While the market received a fillip from corporate activity associated with Fletcher in the past year, any benefits have been snuffed out by Telecom.

The New Zealand market would have outperformed most other bourses around the world in the past year had it not been for Telecom.

The NZSE-40 gross index would have returned 7.5 per cent to investors in that period. Instead, it posted an 8 per cent loss.

This compares to the Australian All Ordinaries index, which recorded a 5.8 per cent return, the Dow Jones, which lost 6.2 per cent, and the Nasdaq, which plunged 39.3 per cent.

A review of the past three years shows the local index (including Telecom) faring even worse against its overseas counterparts.

Whereas the NZSE-40 slipped into negative territory, Australia produced a 10.8 per cent return a year, the Nasdaq 16.3 per cent and the Dow 10.9 per cent.

A review of the past nine years shows the NZSE-40 faring a little better. It is up 9.8 per cent a year compared to the All Ords' 11.9, Nasdaq's 18.9 and the Dow's 14.8.

Where New Zealand, however, has consistently performed well is in its small companies.

In the past year the Small Companies gross index of stocks, which excludes companies in the NZSE-40, lost just 3.5 per cent. Over a three-year period it rose 13.8 per cent a year and in the past nine years, 20.9 per cent.

In each of these periods the local Small Companies index easily outperformed its Australian counterpart, not to mention the bigger indices.

Analysts believe that one reason New Zealand's smaller companies have performed comparatively well is that they are more reflective of the underlying economy.

Neil Paviour Smith of private-client broking firm Forsyth Barr said small companies were also generally well run and well managed

"They have consistently performed over the last decade and they certainly stand out when measured against the poor-performing leaders," he said.

"So, far from being an investors graveyard, the broader New Zealand market has rewarded local investors over the medium to longer term.

"This is particularly so when you compare the performance with Australia."

While the NZSE-40 has been volatile, there have been some stunning performers.

Over the past two years Baycorp's share price has trebled and the Warehouse Group's has doubled. Then there are the likes of Sky City, Sky TV and Auckland International Airport shares which have risen more than 20 per cent during the same period.

Each of these companies is a story of good domestic growth. After establishing a strong local base Baycorp, the Warehouse and Sky City are now expanding overseas. However, unlike many of the leaders in the past, they are doing so in a more considered and strategic manner. They are not exposed to cyclical vagaries or highly geared operations.

Stephen Walker, the head of New Zealand equities for AMP, said there was a better quality of management showing through in these companies, which had grown into sizeable operations.

He hoped that the businesses would continue to grow and become the new market leaders.

At present the cumulative weightings on the NZSE-40 of Baycorp, the Warehouse, Auckland International Airport, Sky City and Sky TV was still only around 14 per cent. So they had limited effect on the index.

Despite the departure of a number of leaders, Mr Walker was not worried.

"However, I would be concerned if you lost a Telecom or a Carter Holt Harvey from our market," he said.

Both those companies are looking to Australia for growth.

Herald Online features:

2000 - Year in review

2000 - Month by month

2000 - The obituaries