NZX50 books its best month in six years, rebounds after horror third quarter

Monday 2nd November 2015

The S&P/NZX 50 Index has booked its best month since the global financial crisis, climbing to record levels in October, as volatility in international markets abated, renewing the demand for returns on equities as low interest rates persist.

The benchmark index advanced 7 percent in October, touching an intraday high of 6014.48 on Oct. 27 and closing at a record 6002.97 last Thursday. Last month's climb is the biggest since July 2009, when the NZX 50 rose 7.9 percent during the volatile trading of the global financial crisis, Grant Williamson, director at Hamilton Hindin Greene told BusinessDesk.

October's surge in kiwi equities came after the NZX 50 Index recorded its worst quarter in the three months ending September since June 2012, dropping some 3.5 percent to 5,593.36, the lowest level since the start of the year. Trading in the September quarter was marked by volatile markets, with the VIX Index, known as Wall Street’s 'fear gauge', climbing to a four-year high in August of 53.29, as a large correction in Chinese equities spooked global markets, already concerned the world's second biggest economy was slowing. The VIX was last at 15.07.

"We certainly had a period of weakness leading into the month," Williamson said. "The high volatility on those international markets started to quieten down at the end of September and that brought confidence back into the local market."

The benchmark index's October run was bolstered by investor demand for investments paying regular income in a low interest rate environment. Last week, the Reserve Bank Governor Graeme Wheeler kept the official cash rate at 2.75 percent, while earlier in the month the European Central Bank signalled it would expand its quantitative easing programme, while the Bank of Japan is expected to boost asset purchases when it meets this week. The US Federal Reserve retained interest rates near zero at its October meeting.

"It's been an outstandingly strong month for the local market. It's been a very good month for shares pretty much everywhere," said Mark Lister, head of private wealth research at Craigs Investment Partners. "You've had your central banks around the world stepping up and doing more, the economic data locally has been pretty solid, and the annual meeting season has been pretty solid."

Within the index, the month's rally was broad-based, with 45 stocks gaining, four declining and only Trade Me Group, the online auction house, unchanged.

"When there is no negative news people look at the share market, and our share market has got the highest dividend share of anywhere in the world," said Brian Gaynor, executive director at Milford Asset Management. "We had a month in October where the news was, I'm not saying it was good, but there wasn't any bad news, it was devoid of bad news in the month."

Skellerup Holdings, the rubber goods firm, was the best performer in the month, climbing 19 percent with its shares touching a 13-month high of $1.56. The company told shareholders at its annual meeting it expects annual profit to grow as much as 19 percent to between $24 million and $26 million as its investment in the US market begins to deliver returns and insulates it from weakness in the dairy industry.

"At the meeting itself, the chairman Sir Selwyn Cushing was incredibly positive," Gaynor said. "It wasn't just the profit upgrade, it was the chairman in particular, the way he spoke at the annual meeting."

Australia New Zealand Banking Group was the worst performer in October, declining 3.3 percent with its shareprice at the lowest level since July 2012. The nation's biggest lender, which is dual-listed with its primary listing on the ASX, recorded cash profit up 1 percent to a record A$7.2 billion as net interest income climbed 6 percent to A$14.6 billion. Australian banks have been raising capital to bolster their balance sheets ahead of tighter financial regulation across the Tasman.

Sky Network Television was the second worst performer on the benchmark, down 2.4 percent, with its stock down to the lowest level since July 2012. The dominant pay-TV provider was also the worst performer in the September quarter as it faces earnings erosion from more viewers turning to online streaming services to get their content.

"Roy Morgan released research which shows 1 in 10 or 9.4 percent of New Zealanders now have access to Netflix," Gaynor said. Analysts are also worried about Sky TV losing customers now the Rugby World Cup has finished, he said.

How the final months of the year pan out on the New Zealand stock market depends on whether the relative tranquility of global markets continues, Gaynor said.

"When you have that kind of sentiment and very low interest rates then equity markets become quite attractive," Milford's Gaynor said.

BusinessDesk.co.nz

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