NZX 50 index sets new record and continues climbing

"The old saying of buy in gloom and sell in boom is the mantra I brush my teeth by," Martin Hawes says.
JOHN SELKIRK/FAIRFAX NZ

"The old saying of buy in gloom and sell in boom is the mantra I brush my teeth by," Martin Hawes says.

Low interest rates are helping the stock market reach new highs but one financial adviser is selling his shares, fearing a correction.

The NZX 50 index, which measures the performance of the 50 largest stocks on the New Zealand stock market (NZX), reached a new milestone on Monday breaking through 7000 points for the first time, closing at 7019 points.

The bull run continued with the index climbing another 0.3 per cent to 7039 on Tuesday, lifting the index's performance for the year to a capital gain of 11.2 per cent.

The NZX 50 index has climbed 11 per cent this year.
CHRIS SKELTON/FAIRFAX NZ

The NZX 50 index has climbed 11 per cent this year.

Authorised financial advisor Martin Hawes said the market was being underpinned by low interest rates and large amounts of KiwiSaver capital being invested in New Zealand stocks.

READ MORE: New Zealand shares finally surpass pre-financial crisis values

But Hawes had turned bearish in recent weeks, selling shares because he perceived valuations to be too high.

"There are likely to be more limited returns in the future," Hawes said.

He was also concerned about New Zealand's reliance on China, which had high levels of internal debt.

China and Australia are New Zealand's biggest trading partners and China is also Australia largest trading partner, making New Zealand highly exposed to one market.

"A lot of New Zealand's economic fortune now rests on China. If China went that would be really bad for New Zealand," Hawes said.

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Many investors found it hard to sell during boom times because everybody was riding a wave of euphoria, he said.

"The old saying of buy in gloom and sell in boom is the mantra I brush my teeth by."

Grant Williamson, a director at brokerage firm Hamilton Hindin Greene, said low interest rates were driving the sharemarket incline as investors sought better returns than what they could get at the bank.

"New Zealanders haven't seen interest rates down at these levels for an extremely long time," Williamson said.

Retired investors in particular were turning to the sharemarket in search of higher income investments because low interest rates offered by banks were not providing enough income to live on.

The New Zealand market offered some of the highest dividend yields in the world which was also attracting foreign investors to the market, he said.

"The percentage of foreign ownership of New Zealand equities is at a pretty high level compared to what it has been in the past."

Most of the foreign investment was coming from Australian funds in search of high yields, he said.

A stable political scene in New Zealand also made NZX companies attractive to foreign buyers.

A correction would come at some stage, most likely triggered by an overseas event or a fundamental shift in New Zealand's economic or political environment, Williamson said.

Corrections could be a good thing when markets were on a bull run.

"It shakes out the weak investors that don't have the staying power and then once they're out of the way the genuine buyers take over again."

Building sector stocks and anything exposed to the tourism sector were doing especially well at the moment, Williamson said.

 - Stuff

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