Record not quite what it seems

United States stock markets have powered ahead to  all-time highs. Photo by Reuters.
United States stock markets have powered ahead to all-time highs. Photo by Reuters.
This week, the NZX50 rose above 5000 points for the first time.

This was heralded as a record high and received a lot of attention.

The NZX itself even put out a market announcement stating the NZX50 had reached an all-time high.

Craigs Investment Partners broker Chris Timms said at first glance, it suggested the market had regained all of the lost ground from the difficult 2007-09 period, surpassed the previous market peak and pushed on to an all-time high.

''We must point out the NZX50, our key index, is different to many of the other benchmark indices across the world in one important way. The NZX50 is a 'gross' index, which means it includes dividends - although not the imputation credits attached to them - as well as taking into account the change in share prices.''

Many of the commonly quoted indices offshore, such the S&P 500 in the US, the ASX200 in Australia and the FTSE100 in the United Kingdom, were all ''capital'' indices which meant they reflected only the change in share prices while ignoring dividends, he said.

''We agree with this logic in principle because the New Zealand market has always been a very high dividend-paying market compared with international markets where dividends are much lower.''

Much of the return from New Zealand shares had historically come from dividends, while US share investors received a larger proportion of their return from rising share prices, Mr Timms said.

However, that did not mean investors needed to be wary of such rhetoric and of comparisons with overseas markets. When Craigs made performance comparisons between different sharemarkets, it always tried to add dividends to indices to ensure the comparisons were on an equal footing.

Also, dividends needed to be excluded when looking at local shares and considering whether they were at an all-time high, he said.

''We can't easily do this for the NZX50 index due to data availability, although we can look at the NZX All index, which is very similar aside from the fact it comprises the 114 NZX-listed companies rather than just the top 50.''

In practical terms, most investors should have recovered their losses from the 2007-09 periods in the wake of the global financial crisis, but only because of the income they had collected along the way, Mr Timms said.

In most cases, share prices were still some way off the highs of several years ago - the same as for most markets around the world.

With the exception of the US, which had powered ahead in recent times to genuine all-time highs, and the UK market, which had only just regained its 2007 peak, many others were well below previous highs. Australia was still 21% below its 2007 peak while European and emerging market shares were more than 15% off their highs, he said.

If the local market was examined on a stock-specific basis there was a similar trend, with most share prices still well off their all-time highs.

''Our market has been an excellent performer over recent years and we should be proud our key sharemarket index reflects this strength by pushing through the 5000 zone. We can also probably take some comfort that as share prices are still some 13% below the high levels of 2007, we are certainly not in overheated territory, despite appearing to be at a 'record high' at first glance.''


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