Many world sharemarkets are poised to reach new benchmarks
next week, as investment continues to grow and worries about
Europe start to recede.
The NZX50 closed last night 4318 points, up 96 points for the
week. Having risen 78% since March 2009, the index was a
''whisker'' away from hitting its record high from May 2007
of 4333 points, Craigs Investment Partners broker Chris Timms
There were some fundamental differences between the New
Zealand sharemarket in 2007 and today, he said.
New Zealand shares were not as expensive now as they were in
2007. In May 2007, New Zealand shares were trading at a
price-earning (PE) ratio of 16.9 times, 21% above the 20-year
average of 14 times.
Today, shares were trading at 15.7 times.
''While that is still 12% above the 20-year average we
haven't got near the heights of 2007,'' Mr Timms said.
Unlike 2007, dividend yields on shares were well above bank
deposit rates. In 2007, a six-month term at the bank was
paying 7.5% while shares offered a gross dividend yield at
4.9%. Today, the same term deposit paid below 4% while shares
were paying 5.8%.
''With such a strong focus on income, and against the
backdrop of low interest rates, it's hard to argue that
shares look overpriced when measured on dividend yields,'' Mr
Earnings forecasts were realistic, rather than optimistic, he
In May 2007, analysts were expecting New Zealand companies to
grow their earnings by 11.4% over the following 12 months
then again by 11% over the next 12 months. Those expectations
proved far too hopeful.
About 40% of New Zealand's listed companies saw earnings fall
over the next year rather than rise and the median increase
was barely 3%.
''Today, we expect earnings to grow by about 10% this year
and next year. Having just seen some excellent results from
the likes of Summerset, Auckland Airport, Delegat's and Sky
Television, this now seems realistic.''
Company debts were also much lower now, Mr Timms said.
Whether it was governments, households or corporates, having
too much debt was a huge part of the problem in 2007. It was
comforting to see that, on average, listed companies had
lower debt now than they did in 2007. The average level of
gearing today was 27.5%, down from 31.1% in 2007.
''Finally, despite a great performance from shares in recent
years, we haven't seen the `herd' flock to shares as much as
some might think.''
According to Reserve Bank data, there was $48.6 billion
invested in New Zealand shares and managed funds, 8.3% less
than invested in the middle of 2007.
The New Zealand-denominated deposits with the local banks
were a ''whopping'' $108 billion, a 52.6% increase on
''For those wondering if there's enough demand out there for
new companies coming to market, that last statistic is
probably your answer,'' Mr Timms said.
Overseas, US stocks ended flat yesterday, denying the Dow
Jones Industrial Index a chance to reach all time highs.
The Standard and Poor's 500 still managed to end February
with a fourth straight month of gains.
The US economy grew slightly in the fourth quarter, a
turnaround from an earlier estimate showing contraction. In
Britain, the country's top share index extended its winning
streak to nine months. The blue chip FTSE 100 index closed at
6361, finishing up 1.3% for the month, and extending its
longest monthly winning streak since 1997.