'Safe haven' NZX lifts to 5-year high

It has been a jagged ride but the New Zealand sharemarket put the worst of the global financial crisis behind it yesterday when it reached its highest level in five years.

The benchmark NZX 50 index closed up 3.69 points at 4012.02, a level investors last saw in December 2007, when the global economy had started to slow but before Lehman Brothers collapsed and plunged the world into the worst financial disaster since the Great Depression.

The day capped a stellar run for the bourse, having outperformed almost all of its global peers in the second half of the year with a return of 15 per cent since June 1.

By comparison, Australia's S&P/ ASX 200 Index has gained 8 per cent over the same period, while on Wall Street the Standard & Poor's 500 Index rose just over 10 per cent.

James Lindsay, equities manager at Tyndall Investment Management, said three factors were behind the surge.

The first was an easing uncertainty about the recovery of the United States economy, the slowdown in China and Europe's protracted sovereign debt crisis.

He said investors were starting to move off the sidelines as policymakers in the three regions showed their willingness to tackle fiscal and economic issues, although risks in the form of the US fiscal cliff and a default by Greece still lurked.

Second, low long-term interest rates in much of the developed world were pushing investors to look overseas for higher yields.

That made New Zealand attractive from a cashflow perspective, as Kiwi stocks typically paid out a higher level of profit in dividends than listed companies in other markets.

And New Zealand's distance from the financial crisis made it attractive to risk-wary investors.

"New Zealand is seen as a safe haven . . . we have the dynamic where equities currently offer higher yields than the fixed interest side of things," Lindsay said.

Despite the rally, professional investors are taking a cautious approach to the Kiwi equity market amid concerns the external factors may have pushed stock valuations beyond their earnings fundamentals. Fairfax NZ

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