By DANIEL RIORDAN
The sharemarket has climbed to its highest level in a month, with Telecom continuing its recovery and a leading broking house tipping the market to surge almost 15 per cent over the year.
The bellwether NZSE-40 index rose 15 points yesterday to 1944, approaching the 1948 level it reached on December 15.
Telecom, which makes up about 25 per cent of the main index's capitalisation, followed Friday's 21c gain with a further 15c rise to $5.23.
Brokers said the recovery was a continuation of the "relief rally" Telecom had enjoyed as investors worldwide thawed in their attitude to telco shares.
ABN Amro broker Nigel Scott said telco stocks had been strong globally. AT&T is up 41 per cent and British Telecom is up 26 per cent since the New Year.
The rebound of Australian telcos had been smaller, possibly because investors treated them less harshly in the first place, said Mr Scott.
Craig & Co broker Byron Burke said talk of the industry rationalisation was helping to lift Telecom's share price, along with the higher dividend yields caused by its lower share price.
Greater optimism over Telecom's on-again, off-again battle with Vodafone for the mobile phone assets of Australia's Cable & Wireless Optus was also helping its share price, although the company's ultimate intentions remained unclear.
Telecom traded as high as $9.81 last year before being hammered by the market as investors lost faith in telco stocks. It reached its low of $4.58 three weeks ago.
Buoyed by the market's strong start to the year, Credit Suisse First Boston has upgraded its outlook for this year, citing an improvement in consumer and business confidence and the strong turnaround of the kiwi since its all-time low against the US dollar in October.
Credit Suisse economist Jason Wong expects the NZSE-40 to reach 2150 by the end of this year, compared with 1901 at the end of last year, a 13 per cent rise.
Returns from dividends, which are not included in the index, will be worth a further 6 per cent, giving a total return to investors of 19 per cent.
Mr Wong said New Zealand shares were extremely cheap against bonds, while the prospect of further gains in the kiwi made local equities attractive to foreign investors.
Globally, analysts were slashing GDP and corporate earnings estimates and pricing in a hard-landing. But easier monetary and fiscal policy, especially in light of the US Federal Reserve's interest rate cut this month, should ensure a soft landing, said Mr Wong.
In other action yesterday, Fletcher Energy rose 19c, or 2.3 per cent, to $8.56 after US-based Capstone Turbine, in which Energy has an 11 per cent stake, gained more than 14 per cent on the Nasdaq on Friday. US markets were closed overnight for Martin Luther King's birthday.
Among blue chips, Fletcher Challenge Building was yesterday's strongest performer, closing up 10c, or 4.6 per cent, at $2.28.
Expectations of interest rate cuts this year and a recovery in construction activity have benefited the stock.
Market surges ahead as telco gloom breaks
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