Market review

- Editor


The New Zealand sharemarket continued its move lower (falling for the sixth consecutive month), with the NZX-50 capital index down 3.1%

Economic data was mixed, with the news of strong fourth-quarter GDP of 1% growth undermined by falling consumer confidence, slowing house sales and net migration now barely positive.

The big news for the month was the landslide shareholder approval for the Canadian Pension Plan Investment Board’s partial takeover of Auckland Airport with 58% of voters in favour of the offer. National emotion aside, this was a fairly rational outcome given market conditions. We even saw significant shareholder Infratil, initially critical of the deal, turn around and accept it. The whole deal came to naught in the end when the Government decided to turn down the purchase, reflecting some relatively clear changes in policy (on foreign ownership) in previous weeks.

A number of key announcements were made at the 11 April annual Telecom briefing day. First, they will be incurring a capex “bubble” for the next three years reaching a peak of $1.1 billion.

Second, that Ebitda (earnings before interest taxed depreciation and amortisation) will fall for the next three years before beginning any recovery. Third, that the FY09 dividend would only be partially imputed, meaning the gross dividend yield will be lower than the current year.

After all the recent finance company disasters, the announcement from Fisher & Paykel Appliances that it was unable to secure a buyer for its finance business (and was therefore retaining it) should not have been a surprise.

Australian shares
The Australian sharemarket (S&P/ASX200) moved almost in lockstep with the New Zealand market – down 3.3% for the month.

The Reserve Bank of Australia (RBA) increased interest rates by 25 basis points (bp) to 7.25%, making this the fourth increase since August 2007.

The best-performing sectors were information technology (+2.9%), consumer staples (+0.4%) and financials ex property (+0.2%), while the worst performers included telecommunication services (-10.5%), materials (-8.8%) and consumer discretionary (-8.7%). Banks initially led the markets lower, largely on concerns over liquidity and defaults, but staged a strong recovery after the US Federal Reserve underwrote a bail-out of Bear
Sterns in an attempt to shore up the US banking system.

Investors remain risk averse, avoiding companies with high levels of debt, especially those with near-term re-financing arrangements. The current conundrum – being the conflict between earnings risk and increasingly enticing valuations – continues to perplex investors.

As if to show that merger and acquisition activity is not completely dead, two interesting deals were announced in the month.

1. Incitec Pivot announced a deal whereby they acquire all the shares they don’t already own in Dyno Nobel by way of a scheme of arrangement and
2. Premier Investments issued a takeover proposal for Just Group in what is largely a scrip bid.

Asciano failed to impress the market with its debut half-year result, which together with concerns over its debt saw the company fall 19.5% in the month.

New Zealand listed property
The New Zealand Property Index (gross) returned -0.9% in March, outperforming the NZX50 Index (gross) which fell -2.7%.

Despite a weak quarter, the listed property sector proved its defensive characteristics by significantly outperforming the broader sharemarket with a return of -7.1% compared to
-13.6% for the NZX-50 Index.

The listed market was volatile during the month due to reduced liquidity as investors mostly sat on the sidelines waiting for markets to stabilise. The best-performing listed property trusts (LPTs) during the month were ING Medical Properties Trust, which gained 2.7%, followed by Property for Industry with 2.0% and National Property Trust with 1.9%. The worst-performing LPTs were Kermadec Property, which returned -11.3%, followed by Kiwi Income Property Trust, with -2.4% and ING Property Trust with -1.5%.

Australian listed property
The S&P/ASX 300 Property Accumulation Index had an enormously volatile month, at one time being down almost 12% before recovering strongly to end the month flat and outperforming the broader equity market by 3.4%. Despite this, the sector has significantly underperformed the broader equity market during the quarter (-19.1% versus -14.6%).

Heightened volatility was again caused by uncertainty in credit markets and the expected impact on leveraged property vehicles. Many of the Australian LPTs are heavily geared and have funds management models that are highly dependent on acquiring property and recycling capital, both aspects of which are significantly impacted by tighter credit markets.

Large, well-capitalised property vehicles with mostly domestic exposure performed best during the month, while those with offshore exposure, funds management models and highly geared balance sheets continued to be heavily sold off.