Forum Archive Index - March 2003

["Ben Dutton" <bendutton@sharechat.co.nz>]

Hi Snoopy

> I don't think there is a problem here as long as you understand what
> Mark Weldon is doing with the new index.  If you go and put money in
> a term deposit  at the bank and are quoted, say, 5.2% for a year with
> interest compounding every three months, you can then compare this
> figure directly with how the stock exchange index is doing.

I hear what you are saying, but the counter argument to this is that when
comparing the NZ50 to any other major index in the world, the results will
be very misleading.

For example, a business newsreader on radio reports - "Today the NZ50 was up
10 points while the ASX200 lost 50 points, the Dow lost 100 points and the
Nasdaq slumped 150 points."

What's wrong with this report?  The NZ50 is a gross index, whereas all the
others are capital indices.  Thus, listeners are being mislead about the
performance of the New Zealand sharemarket (perhaps the capital return that
day was also down along with the rest of the world, but a major comapny went
ex-dividend, "saving" the index from a negative return).

I can see what Mark Weldon was trying to drive at by introducing the NZ50.
Our sharemarket has gone "nowhere" over the past five years, but when you
include dividends paid, returns have been very good indeed.

However, for NZ's capital markets to have credibility we have to use the
same standards as the rest of the world when reporting index returns.  It's
fine for you and me and other people on this forum that understand the
difference between a capital and gross index, but how about the majority of
the investor population?  Gaynor is right - investors ought to beware when
comparing the NZ50 to the rest of the world's markets, because the "returns"
are not what they seem.

Best Regards

Ben Dutton

(Disclosure - besides the NZ50, I think Mark Weldon has been doing an
incredible job and deserves to be commended).





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