New Zealand, Australia both look to China

The respective state of the economies of New Zealand and Australia were brought into sharp relief during the listed-companies reporting season. Business Reporter Simon Hartley and Craigs Investment Partners broker Peter McIntyre consider the two economies' effects on company fortunes and outlooks.

The resilience and buoyancy of the larger Australian economy was reflected in the results of listed New Zealand companies with trans-Tasman operations, while those with New Zealand exposure were flat and hopeful rock-bottom was at last behind them.

Australia was technically never in recession and its resource mining sector - worth billions in overseas export receipts and domestic spending - is looking to surge ahead again as Chinese and Indian economies tentatively loosen their reins of development.

Historically, forays into Australia by New Zealand companies have rarely found favour, such as The Warehouse which exited its toehold stores at a loss.

But for the past six-month reporting season, many companies with exposure in Australia have been positive, on the back of its surging economy.

Craigs Investment Partners broker Peter McIntyre said the reviving Australian economy, underpinned by its mineral wealth, also had stimulation from the Reserve Bank of Australia for infrastructure projects, plus other large infrastructure joint ventures, such as gas projects in West Australia.

"The primary driver for this wealth [of work] is China and Asia; Australia is truly blessed with its mineral wealth and commodities for those markets," Mr McIntyre said.

For National Bank chief economist Cameron Bagrie, China's economic growth and its two-year balanced introduction of a 4 trillion yuan ($NZ840 billion) domestic stimulation package is key to New Zealand and Australia's recovery.

At present, China was New Zealand's third-largest trading partner, but it could possibly be our largest export market within 18 months, he said.

"Exporting from China capitulated [during the global financial crisis] and the 4 trillion yuan is being used to stimulate domestic demand," Mr Bagrie said.

China's growth last year "slowed down" to 6%, and could be expected to be "an absolutely stunning" 8% or more, he said.

However, Mr Bagrie cautioned while China's present inflation rate of 1.5% was considered low, when annualised that was up to 6% and spending could be curtailed to control it.

A housing bubble could form, because lending growth was up 40%.

"With China's opportunities, they are also vulnerable to economic swings like everyone else," Mr Bagrie said.

Mr McIntyre said Fletcher Building, New Zealand's largest-listed company by market capitalisation, and casino operator Skycity both operated strongly in Australia, which was reflected in their results.

Last week, Fletcher booked a $154 million profit for its six months to December, down 10% on last year's result, but it beat brokers' forecasts by a range of $13 million to $21 million.

The Australian Government's home-insulation stimulus package helped underpin Fletcher's result there, staving off the worst of the recession, according to Fletcher's chief executive Jonathan Ling.