The New Zealand sharemarket continued to reach new heights last week, and Craigs Investment Partners broker Peter McIntyre says forces have aligned in favour of investors.
Since new Reserve Bank Governor Adrian Orr started, he had indicated a stable platform for interest rates for consumers. That would mean people with money to invest were more likely to seek out income-generating investments on the NZX than make bank deposits.
United States treasury bonds had risen above 3%, only to fall below the mark later in the week.
Five-year swaps were 2.7%, indicating a stabilisation of interest rates, McIntyre said.
Uncertainty about the Labour-led Coalition Government, falling business confidence and the increase in cattle disease mycoplasma bovis were all making people nervous.
“'There is potential for harm to our dairy sector which could flow into lower exports. All of this can affect economic growth.”
Asked what was driving the rise in the NZX, McIntyre said international investors were becoming more interested in NZ's renewable sector and companies like Meridian Energy were feeling the benefits of investor interest.
New Zealand's retirement sector was also attractive for overseas investors. The sector was well run, had good demographics for the next 15 to 20 years and was providing good returns, he said.
Some of the things which could turn the market downwards included a meltdown in China, rising interest rates in the US and an increase in New Zealand's wage inflation. US interest rate moves were well signalled but higher oil prices would eventually feed into inflation, he said.
NZ's low wage inflation had kept a lid on rising prices, keeping Consumer Price Index inflation - the official measure - below the Reserve Bank's 2% target.
US President Donald Trump doing something “simply terrible” might also cause a slump in markets. However, he had already done some pretty bad things and markets had survived, McIntyre said. An all-out trade war with China or the European Union could be a catalyst for investors to start being wary.
In a bid to rebuild America's industry, Trump has imposed hefty tariffs on steel and aluminium imports, including those from key G7 allies like Canada, Japan and the European Union.
Forsyth Barr broker Damian Foster said the latest reporting season ended on a slightly positive note as beats outweighed misses. Revenue growth far outweighed expectations at 6.7%, operating profits fell by 1.9% against expectation of a 3.5% fall, and earnings per share growth came in at -6.3% against a forecast of -7.6%
Of the 21 companies to have reported, seven reported ahead of EPS expectations, six were in line and six were below expectations.
Given the small reporting season, Forsyth Barr had explored the wider market, identifying companies where share prices had outperformed or underperformed relative to changes to 2019 earnings forecasts, he said.
“We start our analysis by looking for potential outliers where share prices have outperformed or underperformed relative to changes in forecast earnings over the last three months.”
Companies appearing more expensive were: Arvida, Chorus, Fonterra, Investore, Mainfreight, PGG Wrightson, Restaurant Brands, Summerset, Tegal and Vista Group. Those looking cheaper included: a2 Milk, Comvita, Michael Hill, Methven and Sky Network Television.
Foster noted Australian ownership of New Zealand shares had soured slightly.
*Dene Mackenzie is business editor of the Otago Daily Times.