Equities Focus: NZX defies recession, leads gainers on NZX 50

Thursday 4th June 2009

NZX stock has soared 59% this year as the exchange manager acquired assets and reaped fees on capital raisings, leading a handful of companies that are rallying even as the recession grinds into its second year.

Shares of NZX have climbed to $7.10 from $4.93 at the start of the year, the best performance on the NZX 50 Index. The company has profited from the sale of its holding in the Bond Exchange of South Africa and carbon market platform TZ1, while continuing to snap up assets.

“The NZX has done some really good deals,” said Carmel Fisher, managing director of fund manager Fisher Funds Ltd. After divesting stocks indiscriminately last year, investors are “looking for more company-specific factors” this year, and the stocks exchange has delivered good results, she said.

Brewer Lion Nathan, under takeover offer from major shareholder Kirin Holdings, has climbed 54%. Pike River Coal, the coal mining company that’s resumed work at its mine following a collapse of a ventilation shaft jumped 37%, while children’s clothing retailer Pumpkin Patch has surged 35%.

All four companies are rated ‘outperform’ based on recommendations collated by Reuters. Based on average recommendations, analysts are more bullish about the performance of the NZX 50. Within the benchmark index, stocks rated ‘outperform’ outnumber those rated ‘hold’ by 25 to 23, with two – clothing chain Hallenstein Glasson Holdings and Property for Industry – gaining an average ‘underperform’ recommendation.

Trading volumes on NZX’s equity and debt markets picked up by 7% in May, a sign that interest may be returning as companies improve their balance sheets amid signs the global economic slump may be past its worst.

Still, the value of trade slid 20% as investors pared their optimism about the speed of a global recovery. The market has absorbed some $3.9 billion of debt and equity sales through the NZX this year as companies tapped investors for funds to shore up their balance sheets and bolster their financial flexibility as banks tighten access to credit.

Companies raised $545 million in new debt and $209 million of equity last month, according to NZX figures.

Forsyth Barr analyst Guy Hallwright said the pick-up in trading volumes on the exchange and the number of companies raising capital will help lift NZX’s overall performance.

The company is preparing to launch a new clearing house for commodity trading and dairy derivatives on November 20 that will boost the risk profile of NZX Markets and broaden the scope of products available to investors. This week it announced the start of industry consultation to launch a milk powder futures contract.

“Equity markets had a very good bounce from their lows” this year, said Rickey Ward, equities manager at Tyndall Investment Management. “We’re likely to see a period of consolidation, with genuine economic recovery some time out.”

Global stock markets have shown tentative signs of optimism this year as fears about the state of the world economy eased.

The Dow Jones Industrial Average enjoyed gains in recent weeks as banks raised capital to repay government loans and the Obama administration forced automakers to speed up their restructuring processes, resulting in General Motors Corp. and Chrysler Corp. filing for Chapter 11 bankruptcy.

The Dow is down 2.9% so far this year as concerns about the US government’s record deficit and fears of a potential downgrade to the AAA rating of the world’s largest economy erode investor appetite for big bets on equity markets.

Australia’s S&P/ASX 200 index gained 6.5% to 3,955.7 this year. New Zealand’s largest trading partner has avoided a technical recession, with the economy growing 0.4% in the first three months of the year after the Rudd government injected A$67 billion into the economy.

The Nikkei 225 index, Japan’s benchmark index, has gained 7.2% since the start of the year, after the economy started to pick up in the second quarter. Japanese gross domestic product tumbled 9.7% in the 12 months to March 31 as dwindling consumer confidence sapped demand for the nation’s exports.

Europe’s Dow Jones Stoxx 600 index gained 2.7% as the prospect of a change in the world’s fortunes encouraged investors to eschew safe haven investments, but the outlook for the Euro-zone is grim, as the region’s economy contracted 2.5% in the first quarter and will continue to contract this year, according the European Central Bank’s Ewald Nowotny.

New Zealand’s economy has shown signs of resilience as the central bank cut interest rates to a record low 2.5% and indicated they would remain low until the second half of 2010. The government axed tax cuts over the next two years as it sought to curb fiscal stimulus as avoid a credit rating downgrade by Standard & Poor’s that could have cost the country some $600 million per year in added interest repayments.

The NZX 50 index gained 2.9% this year as companies faced with rising debt tapped investors for funds to improve their balance sheets, and optimism the economy had troughed gained traction.

Fisher & Paykel Appliance is among companies raising capital via the issue of new shares, with China’s Haier taking a 20% stake in a deal that will help the New Zealand manufacturer repay debt and give it distribution in China. That follows Nuplex Industries, which sold shares at a deep discount to salvage its balance sheet and today announced plans for a one-for-four consolidation of its shares, reducing the number outstanding to 189.8 million from 759 million.

Among recent data to stoke optimism for the world economy, China’s Purchasing Manager’s Index showed manufacturing grew for a third month in May, while US consumer confidence rose to the highest level in eight months, according to the Reuters/University of Michigan final index of consumer sentiment.

Total trades on the NZSX market rose 7% to 53,030 while the value of trade slide 17% to $2.06 billion. Trading on the NZDX market rose 14% to 3,841 while the value dipped 44% to $142 million.

On the NZAX market for smaller cap and start-up companies, total trades slipped 8% to 237, while the value traded jumped 30% to $1.6 million. Shares of NZX fell 1.4% to $7.10 today, having soared 59% this year.

Fisher is cautiously optimistic about the market for the latter half of the year. She expects it will probably come off "in waves," but predicts the trajectory is still on the up.

Businesswire.co.nz

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