Market barometer: Strange times in the markets bring even stranger comments from sharebrokers

Friday 28th April 2000

Smaller companies capital index

Some sense of order appears to be returning to sharemarkets after the Nasdaq rupture, which has taken that index back to its ancient values of December 1999. Microsoft's legal woes are likely to be discounted by market watchers eager to find bargains.

Local sharebrokers have said strange things about the performance of New Zealand's sharemarket. The basic theme seems to be the chronically depressed sharemarket is a pretty good investment area because you can lose less here than in sharemarkets overseas that make substantial capital gain the norm year-on-year.

The 1000-point fall since January of the NZSE smaller companies capital index (SCI, see chart), which set in well before the Nasdaq rout, was missed entirely by these enthusiasts.

New Zealand business is in trouble and saw it coming with the change in government, if the SCI's crash starting barely a month after change of administration is anything to go by.

It is just not possible to saddle business with renazification of ACC and associated compliance costs, and then expose it also to unionised wage fixing and strikes that will crush regional pay differentials, plus see interest rates go up, while realistically expecting listed companies to post higher profits and pay increased dividends.

The government's cost-plus attitude to the way it strangles the economy can go on unnoticed only for so long, but the sharemarket picked the trend early on.

When Treasurer Michael Cullen attacked the NZSE, he should have realised the problem lay not with the shopfront, but with the goods his own government is putting in the window.

Dr Cullen moved quickly to gag Deputy Prime Minister Jim Anderton over publically jawboning the Reserve Bank about its role in interest rate setting, having made the same mistake himself, but the potential damage lies ahead.

Stability of the government and structural settings for the New Zealand economy will be an increasing focus for the sharemarket.

Local indices are giving signals of having bottomed out. The NZSE top 40 capital index is lodged around 2000, but has serious resistance ahead at 2200. The smaller companies index has plumbed the 5000 area and bounced back up, but still looks fragile. Main stocks are tepid.Telecom is capped under 900cps at the moment. Carter Holt Harvey could have hit bottom at 160cps.

Fletcher target shares are marking time, with consummation of the Norske Skog deal, should it go ahead, still down the track in June.

Air New Zealand has cooled off after a burst and must seem to some a lame duck. Singaporean investment in Auck-
land International Airport has not so far reversed share price decline, although some turnaround may be in evidence at the 230cps mark.

The Dow Jones industrial index is steadying at around 10,500, while the Nasdaq seems to have arrested its decline at 3500. The Standard & Poor's 500 index has held at 1400.

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