Mighty River sale lures Kiwis back to healthy market

21:59, Mar 18 2013

The numbers of people returning to the stockmarket - and putting their names down for Mighty River shares - will find it is very different from 1986-87, when the market went bonkers, eventually causing many to lose their shirts and to swear to never buy another share.

Back then an aggressive chap - he didn't give his name - phoned me. He said I was an all-time loser (and other unfriendly terms).

I've been abused by experts but this guy was good.

My crime? I'd been writing columns urging caution.

Among other things, I'd said that the sharemarket was grossly over-valued, weird companies were being floated, insider trading was rampant and markets did not rise forever.

The caller said: "You're a bloody idiot. I'm making a fortune.


"I've sold my house, got a big loan from the bank and put every cent into shares!"

So where are you living, I asked. He said he had moved his wife and kids into a caravan.

"We're doing fine - and getting rich."

I never heard from him again - but he comes to mind every time I pass a caravan park.

Is he still there? (By the way, I followed my own advice, sold shares and paid off the mortgage).

Many people - including some who were warned off the stock market by their parents - are rethinking their attitudes to shares.

This is being encouraged by the fortune the Government is spending on advertising ahead of the partial float of Mighty River.

This isn't necessary: thanks to the endless legal and other publicity engineered by highly vocal opponents, there can't be a Kiwi who isn't aware of it.

Ironically, critics are helping ensure the sale should be a runaway success.

Folk who usually wouldn't have been aware of a new share float must be thinking: if Mighty River is so valuable, and returning such high dividends, why shouldn't we buy it and get the promised loyalty bonus? Clever ploy: Kiwis love a bargain.

By luck this sale comes when shares are back in vogue and interest rates are low.

Many overseas markets are setting new records, notably Wall Street helped by extremely low interest rates and improving economic data.

This is likely to continue till the Federal Reserve Bank stops printing money and begins lifting interest rates, though this could be many months away.

The Kiwi market is having a splendid run.

Investors are hungry for quality new investments, such as the Fonterra fund.

People fell over themselves to buy shares in Sky TV when Rupert Murdoch surprisingly sold his large stake. This aroused little comment, though it marked a significant break after a near 50-year investment in this country by the media mogul.

New Zealand - and The Dominion newspaper - was the first overseas move by the youthful Murdoch in 1964.

As a supportive (and, in the early days, very hands-on) shareholder he encouraged the INL group to grow, absorbing other major papers like The Evening Post and The Press.

He respected the independence of its papers and management before eventually selling and focusing his attention on Sky TV.

Local investors have snapped up other multimillion-dollar selldowns, including Steel & Tube and Auckland International Airport.

Superficially the market doesn't look different - but individual Kiwis have bought back control of millions of dollars of quality assets in these companies from overseas owners.

Most listed New Zealand stocks weathered the period after the 2007 global crisis well and shareholders didn't suffer the dreadful trauma of those who lost billions in badly managed finance companies.

Most Kiwi companies turned out to be lean and mean, with their balance sheets and debt in reasonable order in 2007, meaning they were well-placed to face the tougher environment. This wasn't the case in Australia where banks and industrial stocks were forced to raise millions in huge cash issues - though this presented great opportunities for Kiwi shareholders.

Till recently the NZX has been outperforming the ASX. This is changing; many Aussie stocks have been having stellar runs over the past few months. Since January, the NZX is up 6.7 per cent and Australia 9.4 per cent.

Reasons for the upward momentum in both markets are similar: domestic interest rates are falling (always good news for shares); companies appear to have manageable debt; many did better than expected in the last reporting round and are increasing dividends which are better than interest from a bank. KiwiSaver and Australian funds are putting millions into the market.

Both countries face economic problems, including natural disasters like drought and floods, falling commodity prices and a high dollar which is costing jobs and hurting exporters. There is one curious difference: some foreign exchange experts in Australia are predicting their dollar will fall sooner rather than later (which would be good for exporters). But Kiwi analysts expect our currency to stay up, though it slipped on Thursday after the Reserve Bank's latest announcement.

Kiwi investors are ignoring the drought, instead focusing on the positives, including the Christchurch rebuild and rising confidence in housing and consumer spending.

It is inevitable that at some stage the sharemarket will hit another rough patch, though long- term holders of quality stocks have learned to ride its peaks and troughs with equanimity.