Liquidity boost to equities

HAMISH RUTHERFORD AND JAZIAL CROSSLEY
Last updated 07:53 04/10/2012

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Trading volumes on stock exchange operator NZX surged in September as money printed by central banks flooded markets around the world.

Metrics released by the Wellington-based bourse yesterday showed the value of equity trading rose 15.9 per cent last month compared with September 2011, to $2.6 billion. Trading values for the previous seven months had been lower than in 2011, with the value of equities and listed debt traded in the nine months to September 30 down 3.3 per cent on the first three quarters of 2011.

Sam Stanley, head of business strategy and sales at NZX, said stronger September trading appeared to be driven by quantitative easing - often called "printing money" - out of the United States, where the central bank was buying bonds in an attempt to lower interest rates.

"Global equity markets have been trading nicely higher just on the basis of all this quantitative easing we've had out of the States, so that's been so supportive," Stanley said. "Markets have gone through the roof. There's been a great environment for equities given the low interest-rate scenario going forward."

The US Federal Reserve "is going to be pumping up to US$40 billion [NZ$48.7b] a month if required, and that should underpin equity markets going forward."

Stanley said the path for equity markets in the coming months would probably be dictated by the events in Europe, with Spain believed to be on the verge of requesting a bailout package.

Reaching a deal with Spain would boost market confidence, while delays could cause investors to seek the safety of investments such as government bonds.

"I would be looking at this very much as what happens with Spain in the next couple of weeks, which could give direction to global equity markets."

Meanwhile, New Zealand stocks rose yesterday, with strong buying from retail and overseas investors. The NZX 50 was up 18.35 points to 3889.60.

BT Funds Management portfolio manager Matthew Goodson said there was strong buying across the board: "There have been some significant fixed interest maturities of late, and interest rates being so low it is forcing people to up their risk profile [into stocks]."

Fletcher Building rose 2.5 per cent to $7.34 after 4 million shares changed hands.

Goodson said the Australian official interest rate cut on Tuesday led to hopes of a better performance from the dual-listed construction company's Australian business. The Reserve Bank of Australia slashed the official interest rate by 25 basis points.

"Although the reason for the cut was the tough domestic economy, and we continue to see signs of activity in the housing market in New Zealand being down," Goodson said.

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Away from equities, the performance of NZX's other trading platforms was mixed last month.

On its derivatives platform, the number of lots traded fell 17 per cent compared to the same month a year ago. In its grain trading business, the number of tonnes traded in the season to date was 731,055 at the end of September, 80.5 per cent higher than the same stage a year ago.

- © Fairfax NZ News

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