Earnings season to test new 'new normal'

21:10, Feb 06 2013

Who remembers "green shoots"?

Immediately after the global financial crisis, the search for green shoots was everywhere.

In those first months, optimists became adept at unearthing every slender reed of recovery, which would duly be swept away by the next tsunami of bad news.

Fairly quickly, "green shoots" gave way to the "new normal": an economy as flat as a pancake, with no likelihood of improvement.

Somewhere in there, the economies of the developing world became a larger economy than the pampered and debt-ridden economies of the First World, a harbinger of huge changes that we have yet to appreciate.

However, after five tough years, a lot of false starts, and with some huge questions about ultimate success, The First World suddenly looks justified to hope for slightly better times ahead.

A "new new normal" may be about to emerge.

The United States will find a way through its debt ceiling problem and is starting to grow after months of money-printing to try and kick-start its economy.

Europe also looks a bit better. The recent repayment of emergency lending by the several European Governments is a sure sign that financial stability - the necessary pre-cursor to a recovery - is returning to the Eurozone.

Notwithstanding unimaginably high unemployment, the most troubled southern European economies believe the worst is past.

This new new normal is nothing exciting, no great growth spurt globally, but it is a more settled environment in which slow economic recovery can occur.

If financial crises take seven years to work through, as some argue, then we are five years in and should be seeing some improvement globally. Throw in the Christchurch rebuild, which will really start cranking this year, and the local economic outlook doesn't look too shabby.

No wonder our dollar remains stubbornly high.

Reflecting this broadly positive outlook has been the onward march of the NZX50 index of leading stocks in the first month of the year. Having already risen 25 per ent over the course of 2012, the NZX50 put on about 4 per cent over January to reach its highest levels since late October 2007.

Some market-watchers suggest the New Zealand market could have another eight to 10 per cent of upside to go.

All of which makes the half-year earnings season, which starts in earnest next Wednesday with SkyCity's earnings, an important bellwether for the rest of the year.

If earnings disappoint, sure as eggs improving sharemarket sentiment will retreat. It's a common enough feature of our equities market to jump optimistically into the New Year, only to sag in response to evidence from the real world.

This time around, the signs are a little better. Outdoors supplier Kathmandu, jewellery franchise Michael Hill, and one or two others have issued healthy profit upgrades in recent weeks, and there have been no downgrade warnings as yet.