New Zealand’s strong growth and low interest rates helped drive its share market to a record high Tuesday, as the dairy-rich economy escapes the volatility in emerging markets in neighboring Asia.
The market’s appeal to overseas investors has been enhanced by the relatively high dividends on offer, in addition to a string of new listings.
Though a minnow by global standards–New Zealand’s benchmark NZX-50 has a market capitalization of just over 50 billion New Zealand dollars (US$40 billion) versus around $1.3 trillion for Australia’s S&P/ASX 200–the index has risen nearly 16% this year, adding to a 24% gain in 2012. The sharp rise comes despite the money streaming out of highflying emerging markets elsewhere in Asia.
The NZX-50 index closed Tuesday at 4698.027, its highest level since it was introduced as a benchmark in March 2003. The previous high was set in May this year. The Australian market has also outperformed, hitting a five-year high Monday even as the resource-rich economy slows sharply as a long mining boom fades.
In May, the New Zealand government raised NZ$1.7 billion through the sale of a minority stake in Mighty River Power. That was followed by the August debut of fuel supplier Z Energy, which raised NZ$840 million.
Next on the block as soon as next month is a 49% stake in Meridian Energy, a state-owned power generator worth up to NZ$6.5 billion that supplies households and industrial clients including a smelter majority owned by Rio Tinto.
Fueled by dairy exports and the rebuilding of the southern city of Christchurch after a major earthquake, New Zealand’s economy is performing well. Business confidence reached a 14-year high in July, while consumer confidence is hovering around a three-year high.
Technology stock Xero hit a record high Tuesday, and the country’s main gateway Auckland International Airport was at its highest level in over five years. The biggest stock on the exchange, Fletcher Building, hit its highest level since Feb. 2008 on Monday.
James Smalley, a director at investment firm Hamilton Hindin Greene, said the strength of the island nation’s economy appealed to foreign investors, especially as global interest rates remained low, reducing yields on cash investments.
New Zealand’s central bank has kept interest rates at a record-low 2.5% for more than two years to shield the economy from global economic shocks and help keep downward pressure on the local currency.
Unlike other markets, the NZX-50 index includes dividends in its calculation of the overall index level, which inflates market gains in comparison to other global exchanges.
Source: WSJ
