KEY POINTS:
The US credit crunch ended four years of double digit gains for the local sharemarket's benchmark index and is likely to continue hindering returns for at least a few more months, market operator New Zealand Exchange says.
NZX's December operating numbers released yesterday provided detail on the market's performance during what head of markets Geoff Brown said was a year of two halves.
The benchmark NZX-50 index, which measures dividend returns as well as share price movements of New Zealand's top listed companies, closed at 4041 on December 31, a third of a percentage point below where it began the year and 7 per cent below the May 24 high hit just before equity markets around the world were sent sprawling by emerging problems in US credit markets.
Acknowledging the dismal market performance over the last several months, Brown said it was important to see that in the context of gains over preceding years.
"We've had a market that on a five year view has performed very well and I think in the context of what happened internationally this year and combined with a very strong currency to which many of our companies are exposed, then those are things which have certainly counted against us during the second half."
Brown was cautiously optimistic about a better overall market performance over 2008 but with one proviso:
"If the market was to perform well over the year, the bulk of that performance would be in the second half because I think we've still got some issues internationally to go through before you'd see the market rebound."
There were at least some consolations for NZX in yesterday's data, including a 7 per cent increase in the number of trades on the NZSX main board, albeit with an overall value 4 per cent below the preceding period.
"The volatility has added somewhat to trade numbers which helps a bit," said Brown, "But the trade numbers for 2007 overall remain a bit of an Achilles heel as far as the exchange is concerned".
The average daily number of trades on the New Zealand sharemarket had remained fairly flat for the last three or four years, a period when that number has increased substantially on other sharemarkets.
"That's really the challenge for us. We've had a fair impact in terms of stocks that have come off the exchange, and we haven't had a derivatives market which not only creates trades in its own right but fuels trading in the underlying stocks as well."
NZX will look to tackle that later this year once its clearing and settlement system is upgraded by offering a much wider range of market products including stock derivatives such as options which, despite a number of attempts, have yet to get off the ground here.
"We've had a market that has been a very vanilla cash equities market where the only way to make money is when the market is going up," said Brown. "I wouldn't have any doubt that in an environment like that over the last few months, products like options and short-selling would provide other opportunities for people to make money."
Meanwhile, although the index finished the year flat, once dividend payments are excluded from the equation, the market's actual value shrank during the year.
As at December 31 the NZSX's total market capitalisation stood at $70 billion, 6 per cent down on a year earlier.
That was in spite of $2.7 billion worth of new equity being raised over the year.
Hero to zero
NZX-50 index's performance over year to December.
2007: 0 per cent
2006: 20 per cent
2005: 10 per cent
2004: 25 per cent
2003: 25 per cent
