'Rising tide' lifts NZ shares past milestone

The last time the NZX-50 was above 3000 was on October 7, 2008, three weeks after US investment giant Lehman Brothers went into bankruptcy sending the financial markets into a panic. Photo / Kenny Rodger

Sharemarket watchers say New Zealand passed a psychological milestone as the benchmark NZX-50 index yesterday climbed above 3000 points for the first time since October.

But the mood was short-lived, as the index has now slumped back below 3000. A short time ago it was down 23 points, or 0.8 per cent to 2994.


The index rose 20.46 points to close up 0.68 per cent at 3018.47 in the market's 11th day of positive trading.

The last time the NZX-50 was above 3000 was on October 7, 2008, three weeks after US investment giant Lehman Brothers went into bankruptcy sending the financial markets into a panic.

While yesterday was not particularly significant in terms of trading the 3000 mark was important, said Macquarie private wealth investment adviser Brad Gordon. "Markets like big numbers, the big round numbers. Psychologically it is a very good sign."

Gordon said the rise had been driven by positive reactions on the US market to its reporting season. The three major indexes in the US - Dow Jones, the Nasdaq and the Standard & Poor's 500 - have risen about 11 per cent each over the past two weeks.

Improved sentiment from New Zealand companies with consumer exposure has also played a role.

"Our market is quite fragmented but it has a lot of exposure to consumers."

Staples like power and telephone companies were not as affected by the recession but others like Fletcher Building and Pumpkin Patch were more cyclical.

"What we are seeing is a positive recovery in consumer cyclicals."

Gordon said Macquarie believed there would be a V-shaped recovery as there was support around the improvements in the market.

Companies had been in cost-cutting mode for the past two years and that meant the first sales out of a downturn were the most profitable as they were being done from a low-cost basis.

Gordon said the biggest hurdle which had the potential to hurt the markets was inflation but he did not expect that to be an issue for at least another year.

It seemed likely the current reporting season results were already built into share prices but there was no doubt the market was overvalued in the short term and there would be a slight correction, he said.

Hamilton Hindin Greene client adviser James Smalley also said the 3000 point was important. "It is certainly a psychological barrier."

However, he warned the New Zealand market was always going to appear more positive than others because prices were reported on a gross basis, unlike most other markets around the world.

That meant dividends were included in the price and New Zealand companies had maintained high dividends throughout the recession compared to businesses in other countries. Smalley said the New Zealand market was being buoyed by other markets. "A rising tide raises all boats."

But its ongoing growth would depend on the market having a V-shaped recovery.

Smalley believed the low-interest rate environment would help underpin share prices as investors sought out high-dividend-paying companies in lieu of low bank rates.

Smalley said a drop in the volatility of the markets was also encouraging.

"Last year fundamentals went out the window. Now we are starting to get rational pricing return to the markets."

But he warned any upset in the US would also drag New Zealand down.

"Everyone is roped together. New Zealand is not immune. What we went through last year was big. Hopefully there will be just a continuation of a gradual recovery."

But the New Zealand market still has a fair way to go before it gets to the highest point reached on May 24, 2007, when the NZX-50 hit 4333.24.