Market Close: NZX 50 snaps two-day slide, Telecom gains

Monday 10th November 2008

New Zealand's NZX 50 Index rose, snapping a two-day slide amid perceptions some stocks are cheap after the benchmark's 30% slide this year and after China's stimulus package helped stoke optimism about global demand.

The NZX 50 rose 46.203, or 1.7%, to 2837.849, clawing back its same-sized decline on Friday.

Telecom Corp. gained 6.6% to NZ$2.41 amid speculation the company may be among beneficiaries of the new government's plans to invest as much as NZ$1.5 billion on the roll-out of an ultra-fast broadband network. Fletcher Building gained 1.4% to NZ$5.76 on speculation the stock represents good value trading at just 6 times earnings.

Australia's S&P/ASX 200 Index gained 1.9% to 4111.6 in late afternoon trading after China said it will spend US$586 billion to prop up its economic growth. Rio Tinto and BHP Billiton, which sell raw materials to the world's No. 4 economy, both gained about 7%. Japan's Nikkei 225 Index was almost 6% higher at 9088.19 in mid-day trading on optimism about China's spending plans. Hitachi Construction Machinery jumped 17%.

"Anything that re-stimulates the world's economies has to be good," said Craig Brown, who helps manage about NZ$2 billion at ING New Zealand. "The market is pretty uncertain and volatile and that allows you to pick up some quite good bargains now."

Fisher & Paykel Healthcare rose 3% to NZ$3.08. The company, which reports earnings this month, said in October its profit would be lifted by the weakening New Zealand dollar because some 85% of revenue is in U.S. dollars. The stock is rated a "buy" by five of eight analysts who follow the stock.

Pike River Coal fell 1.7% to NZ$1.13 after Rio Tinto said it would cut Australian iron ore production by 10% because of waning demand from Chinese steelmakers. Steelmakers rely on coking coal, which Pike is preparing to extract, to fire their mills.

Renaissance Corp. fell 4.3% to 45 cents after the Apple Inc. distributor and IT services company cut its profit forecast because of lower-than-expected earnings the past two months and deferred orders. Earnings before tax will be NZ$3 million to $3.5 million this calendar year, the company said in a statement. In July, the company was expecting to exceed last year's $5.2 million.

Retailer Smiths City Group was unchanged at 37 cents after saying first-half profit was "substantially down" on the previous year as tough trading conditions hurt sales.
Smiths City has declined 35% this year.

The earnings downgrades follow similar announcements by Warehouse Group Ltd., Telecom and Sky Network Television last week, a sign that the economic recession is eroding profitability. Last week, blue-chip companies including Toyota cut their earnings forecasts amid concern a global recession is looming.

"The world is not a particularly positive place at the moment," ING's Brown said.

Warehouse fell 0.3% to NZ$3.89 today.

Brown said he has been "nibbling" at stocks which have been "overly hammered" but ING is not feeling confident enough in the outlook "to really fill your boots."

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