The New Zealand sharemarket rose to a five-year high yesterday, and looks set to push higher as low interest rates and the Christchurch rebuild fuel equity momentum.
The NZX 50 Index closed at 4204 points, a level last seen in 2007 and just 130 points off its all-time high.
That was largely due to a stellar run for Kiwi stocks in 2012, as the country's relatively stable economy and high level of dividend payments stoked investors' appetite for equities.
Brokers say those themes are still in place, and although stocks are trading close to fair value, they should push the index through its all-time high of 4339.91 points, a level it peaked at in July 2007.
Grant Williamson, a director at Hamilton Hindin Greene, said low interest rates should continue to drive appetite for equities in the year ahead, with demand boosted by an improving economy, particularly as the earthquake rebuild speeds up.
"I believe there's still good value in the market and growth ahead," he said.
The Reserve Bank is this week expected to keep the official cash rate on hold at the historically low level of 2.5 per cent - likely to remain in place until at least the end of this year, according to market estimates.
The central bank's figures also show there was about $109 billion sitting in household bank accounts as of November last year.
Bryon Burke, head dealer at Craigs Investment Partners, said while stock valuations had recovered sharply in the past 12-months, they were coming from a very low base.
He said price-to-earnings multiples, a measure of how much investors are willing to pay to hold a stock, were approaching 15 times, but that also reflected the low level debt among corporates.
Both brokers said the upcoming reporting season, which starts at the end of the month, could be a potential headwind if earnings did not match forecasts.
Another potential headwind could come from the listing of state-owned assets, which could prompt some investors to hold back on any equity acquisitions until the floats take place, but that is seen as positive for the capital market in the long run.
Asset manager AMP Capital, whose three New Zealand-centric wholesale funds all outpaced the benchmark's performance, warned investors not to expect a repeat performance of 2012 in the year ahead.
The firm's NZ Strategic Shares, NZ Shares Active and NZ Shares (average) funds delivered annual returns of 28.1 per cent, 26.9 per cent and 27.5 per cent respectively before tax and fees, versus an NZX50 return of 25 per cent.
AMP's New Zealand chief economist Bevan Graham said that while he was hopeful of a less volatile year, there were plenty of macroeconomic headwinds lurking, chiefly in the form of US fiscal issues, Japan's stimulus package, and Europe's ongoing sovereign debt crisis.