'Opportunities in NZ shares, emerging markets'

New Zealand shares offer solid opportunities for investors this year, a commentator says, despite warnings of overheated financial markets.

Thursday, March 21st 2013, 6:00AM

by Susan Edmunds

Tower investments chief executive Sam Stubbs sparked debate last month when he said there was a bubble forming in the New Zealand sharemarket.

The NZX has risen 78% since March 2009 and is now just 1% off its all-time high, reached in May 2007. Last year the market rose 24%, its strongest year in 10 years.

But Mark Lister, of Craigs Investment Partners, said the growth was sustainable and increases would continue through 2013. He said shares were not as expensive as they were in 2007 when looked at on price-earnings ratio, earnings forecasts were realistic, company debt levels were lower and the economy was growing.

In May 2007, New Zealand shares were trading at a PE ratio of 16.9, 21% above the 20-year average of 14.0. Today, New Zealand shares are trading at 15.7.

The market is already up about 6% or 7% three months into the year. “I don’t think it’ll be another blinder,” he said. “But it’ll be a good, solid year supported by the fact that the sharemarket is still paying a dividend yield of about 6%.”

According to Reserve Bank data, New Zealanders collectively have $48.6 billion invested in New Zealand direct shares and managed funds, 8.3% less than we had invested in the middle of 2007.

Compared to money in the bank, shares were an appealing investment. “I don’t think it will be a straight-line return, we have to accept some speed bumps. But over the course of the year things will head upwards.”

Brokers should advise clients to have more invested in shares than normal, he said. “If you’re usually 50/50 shares and fixed income, it should be slanted towards shares even though there has been a big rally.”

He said it was hard to buy bonds or fixed income products with interest rates as they were. The expectation that rates would eventually rise made them less attractive.

There were also opportunities internationally, although he said it was important to know what you were buying. “European banks look cheap but they are a higher-risk proposition. We quite like the United States.”

Lister recommended looking at established businesses that operated in emerging markets, such as 3M. “It’s a US company but sells products in Latin America and the Middle East.”

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