Rebounds after crisis end, global markets flatten

Investors have had a reality check in the last two months as global equity markets have lost this year's gains, and some of last year's as well, Forsyth Barr broker Suzanne Kinnaird says.

Usually after a downturn, market performance rebounded then fell flat for an extended period, she said.

The rebound through to April was unusually strong, driven by massive fiscal stimulus which was now being withdrawn.

"This suggests we may now see markets move more broadly sideways with increased volatility for some time."

Earnings forecasts were revised up rapidly last year in most developed markets - too rapidly, in Ms Kinnaird's view.

Investors were now unlikely to see growth for a while.

Nevertheless, there had been little upgrading in New Zealand, which suggested the New Zealand market could outperform some of the larger global markets through the second half of this year, she said.

"We believe our market targets from the start of 2010 - based on mid-cycle or trend earnings - are still reasonable, although it may take a year longer than anticipated to get to them."

That would imply a two-year gross return target of more than 35%, although the next six months might not contribute much, she said.

In the view of the slower recovery, which was looking increasingly likely, Forsyth Barr had stress-tested valuation-based and PE-based targets to identify stocks which should still perform well in the event of 10% downgrades to valuations of 2011 and 2012 earnings.

Stocks likely to outperform on that basis were AMP NZ Office Trust, The Warehouse and Telecom. Telecom was subject to some uncertainty around the Government's ultra-fast broadband project, Ms Kinnaird said.

Of the smaller companies, Delegat's, Fisher & Paykel Appliances and Rakon were expected to outperform.

Other stocks that could come out positively on two of Forsyth Barr's three measures were Air New Zealand, Briscoe Group, Cavotec MSL, Hellaby Holdings, ING Property Trust, Michael Hill International and Methven, she said.

Craigs Investment Partners had a positive view of The Warehouse, broker Chris Timms said.