NZX50 delivers 12% gain in March quarter as low rates spur demand for yield

The S&P/NZX 50 Index climbed almost 12 percent to end the March quarter at a record, as a late tailwind from the Reserve Bank's bias towards lower rates spurred demand for companies with reliable dividends such as Meridian Energy and Genesis Energy.

Friday, March 29th 2019, 7:16PM

by BusinessDesk

The benchmark index rose 78.76 points, or 0.8 percent, to 9,844.95. Within the index, 37 gained, nine fell, and four were unchanged. Turnover was $136.1 million.

Reserve Bank governor Adrian Orr this week indicated the next move for the official cash rate will be down, triggering a surge in demand for New Zealand equities as investors sought reliable returns from companies with relatively high dividend yields. That typically includes utilities such as power companies and real estate investors. The country's electricity generator-retailers spent much of the week hitting new highs.

In a speech today, Orr welcomed the market's response to this week's statement, where swap rates hit new lows and the currency weakened.

"It's not just New Zealand - it's central banks around the world that have had an impact on equities," said Matt Goodson, managing director at Salt Funds Management. "There are risks that we have reached a quite extreme valuation level."

Cinema software analytics firm Vista Group International, which generates most of its income overseas, was the best performer in the quarter, up 30 percent at $4.88, while A2 Milk rose 28 percent to $14.31. Meridian at $4.185 and Genesis at $3.22 were up 28 percent and 24 percent respectively, while telecommunications network operator Chorus gained 22 percent to $5.90 in the March quarter.

Greg Smith, head of research at Fat Prophets, said the low rate environment and the weaker currency was a boon for exporters, who generate bigger returns from export receipts when the kiwi declines.

Exporter Sanford led the market higher today, up 3.8 percent at $7.06, while Pushpay Holdings rose 3.6 percent to $3.21. Contact Energy gained 3.3 percent to $6.94 and utilities software developer Gentrack rose 3.2 percent to $4.90.

Spark New Zealand was the most traded stock with a volume of 4.4 million shares. It fell 0.5 percent to $3.80 today. The telecommunications company today said it was seeking a content partner for its Lightbox streaming service.

Smith said content has become increasingly expensive as a growing number of streaming players vie for broadcast rights. However, Spark's pursuit of a partner was going against the grain, where other media groups sought to lock up control of those shared online platforms. Australia's Nine Entertainment Co's acquired Stan partner Fairfax Media Group last year.

Sky Network Television, which has been shedding subscribers in that environment, fell 1.5 percent to $1.29 on a volume of 1.6 million shares.

Of other companies trading on volumes of more than a million shares, Z Energy slipped 0.2 percent to $6.26, Kiwi Property Group rose 0.3 percent to $1.485, Air New Zealand rose 2.6 percent to $2.535, and Precinct Properties New Zealand gained 2 percent to $1.56.

Kathmandu Holdings fell the most on the day, down 2.2 percent at $2.24.

Smith said next week's increase in the minimum wage will be a double-edged sword for retailers. On one hand it boosts consumer spending by putting more money into the hands of households, but on the other, it lifts the costs for typically low-paid industries.

Outside the benchmark index, clothing chain Hallenstein Glasson Holdings rose 4.2 percent to $4.69 after reporting a 5.9 percent increase in first-half profit, primarily on lower costs.

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