When is a record high not really a record high?

A few days ago the NZX50 index rose above 5000 points for the first time. This was heralded as a new record high and received a fair amount of media attention. The NZX itself even put out a market announcement stating that the NZX50 had reached an all-time high. At first glance, this would all suggest that our market has regained all of the lost ground from the difficult 2007-2009 period, surpassed the previous market peak and pushed on to an all-time high.

However, I feel obliged to point out that the NZX50, our key index, is different to many of the other benchmark indices across the world in one important way. The NZX50 is a "gross" index, which means it includes dividends (although not the imputation credits attached to them) as well as taking into account the change in share prices.

Many of the commonly quoted indices offshore, such as the S&P500 in the US, the ASX200 in Australia and the FTSE100 in the UK are "capital" indices. This means that they reflect only the change in share prices, whilst ignoring dividends.


I agree with this logic in principle, because the NZ market had always been a very high-dividend paying market compared with international markets where dividends are much lower. Much of the return from NZ shares has historically come from dividends, while US share investors, for example, get a greater proportion of their return from rising share prices.

However, this does mean that we need to be wary of such rhetoric and also of comparisons with overseas indices. When I make performance comparisons between different sharemarkets I always try to add dividends to indices such as the S&P500 to ensure our comparisons are "apples with apples".

"In practical terms, most investors should have recovered their losses from the 2007-09 periods in the wake of the global financial crisis, but only because of the income they have collected along the way."


Dividends also need to be excluded when looking at local shares and considering whether they are indeed at an all-time high. We can't easily do this for the NZX50 index due to data availability, although we can look at the NZX All index, which is very similar aside from the fact that it comprises 114 NZX-listed companies, rather than just the top 50.

The table below compares the NZX50 gross index with the NZX All index, both gross and capital. This illustrates the point that when dividends are included, the headline NZX50 and NZX All indices are well above the 2007 peak, and are indeed at a record high.

But when we consider the NZX All capital index, which excludes dividends and only reflects changes in share prices (as most overseas indices do) we get a very different picture. In this case, the NZ market is still 13.5 per cent below the heady levels of 2007, and it is far from being at an all-time high.

Source: CIP, Bloomberg

In practical terms, most investors should have recovered their losses from the 2007-09 periods in the wake of the global financial crisis (GFC), but only because of the income they have collected along the way. In most cases, share prices are still some way off the highs of several years ago.

In fact, this is the case for most markets around the world. With the exception of the US, which has powered ahead in recent times to genuine all-times highs and also the UK market, which has only just regained its 2007 peak, many others are well below those levels. Australia is still some 21 per cent below its 2007 peak, while Europe and emerging market shares are more than 15 per cent off their highs.

If we look at the local market on a stock specific basis, we can spot a similar trend with some share prices are still well off their all-time highs. Luckily, many of these companies pay healthy dividends, which means that when seven years of regular dividend cheques are included, just about all of the major listed companies have provided investors with a positive total return over the period.

Our market has been an excellent performer over recent years, and we should be proud that our key sharemarket index reflects this strength by pushing through the 5000 zone. We can also probably take some comfort that as share prices are still some 13 per cent below the high levels of 2007, we are certainly not in overheated territory, despite appearing to be at a "record high" at first glance.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. His disclosure statement is available free of charge under his profile on www.craigsip.com. This column is general in nature and should not be regarded as specific investment advice.