Federal Reserve chairman Jerome Powell. Photo / AP
The US Federal Reserve is expected to soon start phasing out - or "tapering" - its bond buying stimulus activities, possibly as early as next month, so what will that mean for equities?
Investors will remember the now-famous "taper tantrum" of 2013, when the Fed threatened to take away the post-global financial crisis punchbowl, sending sharemarkets in the US and around the world into a spin.
Minutes from the September meeting of America's Federal Open Market Committee (FOMC) showed officials firming up their plans for an eventual end to the US$120 billion ($167.3b) monthly asset purchase programme that has been in place since last year to prop up the US economy in the face of Covid-19.
The FOMC is due to meet again towards the end of next week.
New Zealand's Reserve Bank stopped its bond buying, also known as quantitative easing, activities this year.
Harbour Asset Management says that while the current tapering path around the world is contributing to an increase in volatility, it seems unlikely to significantly disrupt equity markets.
"Historically, equity markets have reacted negatively where rate hikes are sharp and/or badly communicated," Harbour said.
"While the global economy has made a lot of progress from Covid lows, the recovery remains uneven, meaning central banks may be wary of aggressive tapering," it said.
"And the current tapering programme has been well communicated."
Harbour's research suggested tapering may drive a "style shift" rather than significant sustained increase in market volatility.
"Historically, pre-tapering has seen growth at a reasonable price and value investment styles outperforming, while bond proxies underperformed.
"Higher bond yields impact valuation of long duration stocks including high price-to-earnings stocks (particularly parts of information technology and healthcare) and New Zealand bond-sensitive electricity gentailers and property stocks.
"In contrast, historically the post-taper period has seen quality, defensives and earnings revisions perform strongly," said Harbour.
"Value as an equity investment style may continue to do okay over the rest of this year, but if history repeats itself, quality could be back in focus in 2022."
Harbour portfolio manager Shane Solly noted that the New Zealand market, with its high proportion of dividend yield stocks such as the power generators, had suffered as bond yields moved higher.
"If you look forward though, once the tapering process actually starts, you see the cyclical stocks tending to perform not quite so well, and people start focusing on income certainty and yield, because what tapering does is take that fuel away from the more cyclical piece of the economy," he said.
"That's what happened last time and this time will be different, but there are many similarities."
Specialised manufacturer Skellerup is off to a strong start to its current financial year.
The company is perhaps best known for its popular brand of gumboots, but its core business lies in the design and manufacture of components and products used in a wide range of everyday applications that must often meet stringent food, drinking water, hygiene and safety standards.
In the June year, Skellerup's industrial division posted earnings before interest and taxation (Ebit) of $32.7 million, up 57 per cent on the previous comparative period.
The agri division reported Ebit of $30.5m, up 20 per cent.
Overall, net profit came to $40.2m, up 38 per cent.
Skellerup chair Liz Coutts told the annual meeting this week that the company made a strong start to 2022, despite ongoing challenges as a result of Covid-19.
"Skellerup's global businesses have continued to outperform our already high expectations of them," Coutts said.
"We expect our net profit for the first half of 2022 to be in excess of 10 per cent above the prior comparative period.
"Demand is strong across the greater part of our businesses, and we expect this to continue," Coutts said.
At over $6, the company's share price has more than doubled in the past 12 months.
Forsyth Barr has lifted its medium term earnings expectations for Skellerup, reflecting continued robust demand and further margin benefits.
"We remain attracted to Skellerup's solid growth outlook, capital light growth model, and ungeared balance sheet," the broker said.
Forsyth Barr has retained its "outperform" rating on Skellerup.
Mark Brown, chief investment officer at Devon Funds, said a2 Milk had given the market plenty of information to work on at this week's investor day.
"I think that we have certainly had more clarity and information than we have ever had in the past from the company," Brown said.
"There is a lot more openness with the new management, which is to be commended," he said.
"Many of us learned a lot more about the business than we had previously, which is a positive."
But Brown said the thing that surprised the market was its comment that Ebitda margins would be in the teens, whereas many in the market had forecast much higher margins, some as high as 25 per cent, by 2024.
"If anything, that was the key downgrade," he said.
But Brown noted that a2 Milk had more than $600m in the bank, even after its $268.5m purchase of a 75 per cent stake in Mataura Valley Milk.
"There is a price for all things, and they still have an exceptional balance sheet," he said.
A2 Milk had often been a target for short sellers, and the share price slumped after the investor day presentation.
Jarden said this week's strategy day investor update from a2 Milk provided a comprehensive update, covering market dynamics, metrics on its brand health and a five-year ambition to transition back to growth, albeit supported by higher investment.
"For us, the key takeaway was evidence brand health remains strong in its key end-market China infant milk formula, notwithstanding macro headwinds and multiple [earnings] downgrades impacting 2021," Jarden said in a research note.
The saga of NZX-listed market minnow New Talisman Gold Mines (NTL) continues.
The mine developer said it had received a claim from outgoing chief executive Matthew Hill for constructive dismissal, asserting that Hill is an employee, contrary to the contractual position between NTL and Asia Pacific Capital Group (APAC) agreed in March 2014.
Given the position taken by APAC, NTL considers the contractual relationship has come to an end with immediate effect.
"Mr Hill asserts he is entitled to various employment-related entitlements and compensation, provisionally quantified at $892,000," NTL said.
"NTL does not accept that Mr Hill has been an employee and denies the claims.
"NTL has recently identified a number of matters of concern arising from the conduct of APAC and Mr Hill throughout the period of the APAC contract and has reserved its rights to make its own claims against APAC and Mr Hill," the company said.
In August, the Financial Markets Authority filed civil High Court proceedings against Hill for alleged information-based market manipulation and making false and misleading representations.
The case relates to anonymous posts Hill allegedly made about the company on the Sharetrader website's online investor forum.
NZ GDP falls 1% in September quarter; analysts expected 0.4% decline.