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OPINION: So the sky didn't fall, after all: it has suddenly brightened. Till late last week, global financial markets were running round like Chicken Licken warning of imminent calamity and that the world was coming to an end.
Some Kiwi investors reacted like the cunning old fox: biding their time and buying shares during the weak patch, then notching up profits as markets rallied on positive United States, European and Japanese manufacturing and economic surveys.
Locally, the NZX was helped by a report that business confidence had reached its highest levels since the late 1990s. As overseas investors bailed out of stocks like Mighty River Power, shrewd locals were "buying back the farm".
Also, there is strong reported interest in Synlait Milk's float, so local investors could end up with a controlling 60 per cent stake, although they are likely to face tough competition from abroad.
The Canterbury dairy company is seeking to raise $75 million and may take oversubscriptions of $45m in what is seen as a rare opportunity for non-farming Kiwis to get a stake in dairying. This is a second chance for Kiwis to buy into the company: it planned to raise $150m in 2009, but the timing was bad and the move was abandoned.
Bright Dairy injected $82m for a 51 per cent stake, but the float aims to reduce this to 40 per cent. However, Synlait is struggling with a "Mighty River problem", which prevented local brokers advising clients about it. Last Wednesday, after bulky prospectuses had been emailed to some clients, an embargo was put in place, apparently because the issue is being promoted outside New Zealand.
Local investors appear to have been the main buyers of Mighty River shares after its share price slumped from the listing price of $2.50 as mainly Australian institutions sold out. Buyers included local funds who were scaled back in the offer, getting fewer shares than they had wanted.
Its weak patch may have seemed a buying opportunity. The Mighty River share price moved up this week, ahead of its expected entry to the NZX 10 index on Friday, which could see institutions forced to increase their stakes.
The decision by Australian investors to reduce their holdings followed continued uncertainty over opposition parties' plans to regulate the electricity sector. It was encouraging that many cooler Kiwi heads kept calm in the face of turbulence in overseas markets, though some nasty losses were seen in retailing stocks exposed to Australia, where a marked slowdown is becoming apparent.
Essentially, global markets got into a terrible tizz because some were convinced the US Federal Reserve Bank was about to stop printing money. Statements that the Fed was merely considering "tapering"or easing back the policy, if economic circumstances so justified, were ignored.
The rebound began after revised US data that showed the US gross domestic product growth was not nearly as strong as originally estimated, suggesting that the Federal Reserve would have to keep printing money for longer. The US rally continued this week, underpinned by positive news from Europe and Japan, though concerns about slowing growth in China, South Korea and Japan remain.
It takes time for markets to settle properly after a rough patch, so further volatility may occur. Weak patches are not unusual during the northern hemisphere summer, but it is too soon to say how long it will take for the market to regain the buoyancy that led to such strong demand for Mighty River.
The Government will be hoping the markets will be in fine fettle in time for the Meridian float, say in November. It is now felt that it would have created a more responsive climate among Kiwis for this series of floats if Mighty River had been sold nearer to $2.30 - though that would have meant less in government coffers.
- © Fairfax NZ News