Stock Exchange revamp felt at Air NZ

By PAUL PANCKHURST

Observers say Stock Exchange plans to revamp the NZSE-40 index may be a factor in the soft share price of Air New Zealand.

The airline, which ended the week on 53c, dipped as low as 47c after last week's announcement of detailed plans for a switch to a "free float" NZSE-50 index.

Last month, the share traded as high as 60c.

The New Zealand equity manager of Tower Asset Management, Wayne Stechman, said a connection was "a reasonable assumption".

He said a large amount of the airline's previous price rise was due to the format of the existing index.

With few shares available, fund managers benchmarked against the NZSE-40, and passive funds matching the index had been bidding up the price of the stock.

Now, with the prospect of an index in which Air New Zealand would carry less weight, it seemed the process was being reversed.

That was despite the lack of a timeframe for the shift - "everyone knows it's going to happen".

A "free float" means that, in general, the index will be adjusted to reflect the amount of a stock freely available and not tied up in blocks.

Stechman believed some softening in the share prices of Sky Network Television and INL - two companies with big blocks of shares that are not freely traded - could also be linked to the Stock Exchange announcement.

At Macquarie Equities, senior investment analyst Arthur Lim thought the announcement was a factor in Air New Zealand's share price - along with high oil prices, the threat of war, and airline stocks falling into disfavour worldwide.

Lim said that with the bulk of Air New Zealand shares in Government hands and only 8 per cent freely traded, fund managers had ended up in a bidding war.

"The higher it went, the worse it looked for the funds who were under-weight or who didn't have any shares in Air New Zealand."

But Forsyth Barr research manager Rob Mercer was sceptical about the link.

"I honestly think a lot of the weakness is just the fact that it has been overvalued."

Likewise, First NZ Capital economics and strategy director Jason Wong had big doubts.

Air New Zealand had been drifting lower before the announcement was made, he said. Weakness in INL and Sky shares could be due to "a number of factors".