KEY POINTS:
The sharemarket jumped to a record high yesterday, boosting optimism that its strength will lead into an economic rebound next year.
But one expert warned that the gains were coming mainly from corporate activity, not business performance.
The sharemarket's NZSX50 index reached 3811.41 yesterday afternoon, creeping past its previous best of 3809, set in April.
Since then, the market has been hampered by expectations of an economic slowdown, high fuel prices and the regulatory blow to Telecom, which accounts for almost 40 per cent of the market's capitalisation.
It fell to 3416 in August under the weight of downgraded earnings forecasts, more bad news for Telecom - including a poor full year result - and generally gloomy market sentiment.
But international appetite for New Zealand stocks remains insatiable.
The NZX gained 5.4 per cent last month, putting it within striking distance of the record high, which it passed yesterday afternoon.
The peak lasted for only a short time, and the market closed at 3795.75.
The gains appear to vindicate NZX chief executive Mark Weldon's comments last month that the worst was over.
But market veteran Barry Lindsay, research manager at First NZ Capital, wasn't turning cartwheels.
The gains did not entirely reflect the market's fundamentals, which remained "somewhat questionable on a short term basis", he said.
While it was trading at a similar overall price to earnings ratio as overseas markets, growth in company earnings had "virtually ground to a halt".
"It's more to do with corporate activity, either under way or expected," he said.
Over the past month, big changes have been mooted for New Zealand's largest retailer, The Warehouse, and other large companies, including Canwest Mediaworks, have been the subject of speculation.
Even Fletcher Building has been buoyed by a huge takeover offer for Australia's Rinker.
Other factors included plenty of cash chasing shares that were in short supply.
Investors were either holding on to their shares to benefit as much as possible from corporate activity, or were building positions with an eye to better times next year.
First NZ's analysis suggested the economy was most of the way through its soft patch and prospects for late next year and 2008 were bright.
BNZ chief economist Craig Ebert agreed that optimism among businesses was growing.
"It is testimony to the fact that there does seem to be a sense that firms are pulling through - they're maybe controlling their costs a bit better - and that growth isn't as bad as people thought," said Ebert.
"Not only does the economy appear to be growing, albeit patchily, but if anything some of the softer indicators have picked up again."
He cited this week's building consent figures as an example.
"It's hard to say whether they've seen that all the talk of recession was misplaced," he said.
"Even if growth is not progressing as rapidly as before, it's still a relatively robust economy and if you're good you can still make a buck."
The amount of overseas money "sloshing around" showed "people are looking at New Zealand and realising it is relatively robust and with good companies that are perhaps undervalued by international standards".
Fisher Funds managing director Carmel Fisher said the market's performance was evidence that many listed companies were no longer dependent on the"difficult and dodgy" local economy for earnings.
"New Zealand might be slowing, but if you're a Pumpkin Patch and you're making a lot of money in Australia, the US or the UK, what happens in New Zealand is less significant."
