NZ shares enjoy renaissance

The New Zealand sharemarket is staging somewhat of a renaissance in the eyes of investors. Once considered a basket case beyond redemption, it's now getting rave reviews from a new band of cheerleaders.

Monday, October 7th 2002, 3:25PM

One of the biggest fans of our local market is the new head of the Stock Exchange, Mark Weldon.

Weldon is determined to change the image of the market from one of being a poor cousin to other sharemarkets to one where it is seen as the place to invest.

The reasons for the renaissance can be largely sheeted back to the fact that the New Zealand market has performed very well comparatively with other markets over recent years.

It's an arguable point whether the local market looks good because the others are bad, or if it is genuinely good. As ING senior investment manager Amanda Smith argues in another article (click here to read Smith's article) the New Zealand market is full of good companies.

What's more demand for these good companies is likely to be driven higher by the New Zealand Superannuation Fund (aka the Big Cullen Fund), therefore prices are likely to be pushed upwards.

A look at the performance of the New Zealand market compared to both the MSCI, which measures the world, and Australia's All Ordinaries Index (see table) show that New Zealand shares have been strong relative performers over the long term, as well as the short term.

Weldon says he has been surprised at the commonly held view in New Zealand that the local market is no good because it is so small compared to nearly everything else.

He says just because the overseas markets are big doesn't mean they are better. This anti-New Zealand market attitude really hit him, when he came back to New Zealand from New York.

Weldon says that the old adage that when Wall Street catches a cold we all sneeze has been proven wrong in recent years.

While Wall Street has trouble shaking a long bout of flu the New Zealand market has had a healthy spring in its step.

He says the synchronisation between the two markets seems to have been broken.

There are a number of factors which make the New Zealand market good, he says.

One, that differentiates New Zealand from other markets, is that the companies are transparent and they produce a good cash flow from dividend payments.

Currently the New Zealand sharemarket's dividend yield sits around the 5.5% mark, compared to just over 1% in the United States.

The two big benefits of this high payout ratio are that a New Zealand investor can invest in shares and easily do better than a term deposit. Also it should give investors worried about corporate fraud some comfort.

ABN Amro research manager Cameron Watson says that companies can only pay dividends if they are actually making money and have the cash on hand. "(Dividends) provide handy evidence that the profit a company says it's making is actually being made," he says.

He also says that companies that pay decent dividends tend to have share prices that are less volatile, providing a less hair-raising ride for investors.

Also, adding to the attractiveness of the New Zealand market is its imputation tax credit regime.

Weldon says that New Zealand investors should reconsider their strategy of investing a large proportion of their money offshore. He would like to see retail and institutional investors increase their allocation of assets into New Zealand shares.

« Online applications speed up payments

Reasons to stay at home »

Special Offers