Market barometer: Bargains may bring back foreign investors

Friday 10th March 2000

Continued weakness in the sharemarket is evident in indices reaching new lows.

Portfolio reweighting out of New Zealand is taking its toll on share prices and the currency. However, at some point, capital flow should reverse direction as overseas investors pick our sharemarket as representing a bargain basement.

Much hinges on the ability of listed local companies to continue to produce healthy results. They can even shrug off higher interest rates provided the profits are there for strong dividend payments.

Announcement of a government inquiry into Telecom will not help the large cap indices lift from their languor. Our biggest stock and a mainstay of Kiwi retirement investment portfolios, Telecom, cannot be helped by yet more ideologically driven anti-capitalism. When it faces mounting competition at home and huge development efforts in Australia with its AAPT investment there, Telecom does not need its executives distracted by government meddling.

Present investor excitement over the Asian economic recovery will exacerbate any marking down of our sharemarket's standing as a less attractive place to be invested in compared with alternative destinations.

A flurry of local IT restructurings of cashbox companies and some kiwi.com IPOs has not managed to move the overall tenor of a lacklustre sharemarket, mainly because as yet IT forms such a small part of the overall sharemarket. New Zealand may miss out on its own version of the evolution predicted for the Australian sharemarket by broker Saloman Smith Barney. The broker is picking a radical stratification of the Australian sharemarket into the investment equivalent of a social class system, with 50% of the listings comprising the aristocracy - convergent technology companies, a middle-class below them of service industries, and a proletariat underneath them of commodities firms.

New Zealand's sharemarket could be well down the track to poor relative status by comparison with Australia considering the preponderance on our sharemarket of middle and lower class listings as defined by SSB. The lure of Australia or better still the US for our publicly-traded upper class issues will probably prove too tempting to resist. Advantage Group has identified itself as one IT company that is suffering in share price because it is a New Zealand listing.

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