NZ share apocalypse unlikely - analyst

NIKO KLOETEN AND TOM PULLAR-STRECKER
Last updated 13:00 12/04/2014

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Despite dire forecasts for overseas markets, the New Zealand stock exchange's recent struggles do not point to an impending crash, a fund manager says.

The NZX 50 dropped by more than one per cent in early trading yesterday before recovering most of the loss to finish the day down 0.47 per cent down on 5091.43 points.

Earlier this week the benchmark dropped by more than 2 per cent over a couple of days before recouping much of the loss.

Technology stocks have been hit hardest, particularly Xero which briefly fell below $30 yesterday, down 33 per cent from its all-time high of $45 achieved in March.

Technology stocks are particularly vulnerable to a crash, according to Swiss investor Marc Faber, who predicts a sharemarket crash this year that will be worse than the 1987 event.

"I think there are some groups of stocks that are highly vulnerable because they're in cuckoo land in terms of valuations," Dr Faber told CNBC this week.

"They have no earnings. They're valued at price-to-sales. And this is not a good metric in the long run."

The editor of the Gloom, Boom & Doom Report also blamed the US Federal Reserve for what he saw as an impending crash.

"I believe that the market is slowly waking up to the fact that the Federal Reserve is a clueless organisation," Dr Faber said.

"They have no idea what they're doing. And so the confidence level of investors is diminishing, in my view."

His comments followed a similarly gloomy warning by fellow investor Jeremy Grantham, who famously predicted the US housing market crash.

But Mint Asset Management equities portfolio manager Anthony Halls said there was little risk of a big crash on the NZX.

He said New Zealand's strong sharemarket was supported by an improving economy.

"The market has performed well for a couple of years so on most measures it would be fair value. We don't think it's over-valued.

"Earnings per share growth is coming through and we're not particularly worried," he said.

The NZX 50 would climb higher, "but certainly not to the degree of the last couple of years".

Growth this year would probably be in the single digits rather than double digit growth, Halls said.

Sharemarkets were also more volatile in election years and during periods of monetary policy tightening, both of which were happening this year, Halls said.

Meanwhile, the kiwi fell against most major trading partners yesterday, including the Australian dollar and the greenback.

ANZ senior foreign exchange strategist Sam Tuck said the fall against the Australian dollar followed a surprise drop in unemployment from 6.1 per cent in February to 5.8 per cent in March.

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"In New Zealand the economy is priced for massive strength already, while in Australia it's priced for an economy that's a bit weaker than it was before," Tuck said.

The New Zealand dollar dropped after meeting "market resistance" at US87c, he said, although there was a possibility of it passing the post-float high of US88.43c.

"The key thing is, really we've only traded above US87c for eight days since it was floated.

"Of those eight days, two of them have been in the last two days."

CLOUD ACCOUNTING DARLING TAKES A HAMMERING

A week of market mayhem has knocked almost $1 billion off the value of NZX-listed software stocks.

Cloud accounting company Xero took the brunt of the punishment with $823 million knocked off the company's market capitalisation, while Diligent got off largely unscathed.

Xero, which in November rose to become the NZX's second-most valuable stock, has now drifted down to sixth place, behind Fletcher Building, Auckland International Airport, Telecom, Ryman and Sky Television.

The drop will in some investors' views have only restored some sanity to the market and the vast majority of Xero's shareholders are still greatly up on their investment, but it will mean others are sitting on substantial losses.

Xero has not been the only Kiwi technology stock to be buffeted about this week. Recent listing Wynyard Group fell 16 per cent and is 30 per cent off its record high. Fellow newbie SLI Systems shed 14 per cent and is 34 per cent off its high.

The NZX's broader SciTech index is 17 per cent off the record it achieved on January 22.

Forsyth Barr analyst Blair Galpin said the weakness was a reflection of what was happening in the United States market. The Nasdaq index had this week experienced its biggest drop since 2011, with high-growth stocks taking the bulk of the punishment.

Galpin said the broker viewed it as a "correction" rather than a bubble that had burst.

He doubted it would impact the flow of new technology stocks that were considering Initial Public Offerings on the NZX. Most would have their own reasons for listing which would not go away, he said.

- BusinessDay.co.nz

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