Shares in step with adage of St Leger's Day

Poor old St Leger had a gruesome time before he was executed in 679 - he was tortured, blinded, had his tongue pulled out and lips cut off. The seventh century French bishop's crime was to criticise King Childeric for marrying his niece. Surrendering to his foes to save his town from destruction and being kind to the poor did not count in the nasty world of medieval politics.

Today, St Leger is best remembered as a series of top horse races here, in Britain and Ireland - and for the investor's ditty: "Sell in May and go away. Come back on St Leger Day."

The saint's feast day is on October 2. Historically it makes sense, as global shares perform best between November and April, and ease back from May to October. This pattern could be repeating itself. Like most markets, the Kiwi and Australian markets faltered in May and slipped again last week.

In contrast, Wall Street's Dow Jones surged to record highs last month. But it ran into headwinds last week. Believers in the old adage nodded their heads sagely: in the past 20 years June has tended to be the worst month of the year for investors; and second worst in past 50 years.

No-one knows why. One theory is that the wealthiest investors sell their riskier shares in May - before going on extended holidays and forget about making money.

Chances are novice investors who bought Mighty River shares last month must be wishing they hadn't, with the shares slipping well below their $2.50 issue price.

In hindsight, the Government and its advisers sold at an optimum time of market strength, getting a better price than they would today.

Mind you, if they believe in the old market advice, a similar opportunity won't present itself to float Meridian Energy till November.

To get in the right buying mood, investors will want a period of stronger prices and Mighty River to stage a decent rebound. There is an obvious connection between slumping international prices and slipping share prices of Mighty River and other generators such as Contact.

This sector is out of favour, thanks to the sweeping plans by the Greens and the Labour Party to reregulate it.

The Electricity Authority has damned their plans, saying there is ample competition and they will have a chilling effect on investment in new generation.

Most of the downward selling pressure on energy shares has come from overseas investors presumably concerned at the prospect. There is some logic in them quitting energy, bank and other stocks. Over the past weeks, global markets appeared riskier.

This has been reflected in hefty falls in the Australian and New Zealand dollars, and sharp rises in the United States currency.

This flight to safety has caused rises in US treasury bonds, regarded by many as the safest place for one's money in an uncertain world. The 10-year US treasury bond last week rose above 2 per cent for the first time this year, sparking expectations the US could be nearing the end of the period of incredibly cheap money and minimal interest rates.

International investors are fixated with rumours that the US Federal Reserve is about to pare back its money printing, or quantitative easing programme under which it is buying a staggering US$85 billion (NZ$108b) of bonds a month. This has driven down borrowing costs and has been a boon for stocks, encouraging the perception that the sharemarket, with its potential for higher returns, coupled with the rising profits of many companies, is the prime place for investors to park their money in a low-yield world.

This environment has spurred a protracted period of steadily rising prices and of key markets setting new records, though fundamentally their economies are still far from healthy.

Most experienced investors - including most Kiwis who own diversified share portfolios - know in their bones that prices do not rise forever.

The NZX and other markets have long seemed overdue for a pullback, a period of reassessment. This is usual market behaviour and is healthy.

However, the extreme money printing moves by the US and Japanese governments have led investors into a new, uncertain world. This is why there is such nervousness overseas and heated debate over when the US Federal Reserve will scale back its stimulatory moves.

This is not really expected to start happening before next year: the Fed has said it won't start raising short-term interest rates, now around zero, until the unemployment rate falls to 6.5 per cent. Latest figures suggest it is stuck around 7.5 per cent.

It is difficult for Kiwi investors, with our economy in better shape than many others, to plan their next move, especially as the profitability of exporting stocks should be improving thanks to the weaker dollar.

If you have money to invest, the market must be starting to look juicier as dividend yields pick up - and domestic interest rates look set to stay low in the medium term. For instance, Mighty River - having fallen by 20 odd cents - is now yielding an appealing 7.2 per cent at Friday's $2.30.