AMP Capital head of investment strategy Keith Poore says the yield story has become less compelling on the NZX recently.
AMP says that the New Zealand share market is around its fair value level and there is room for cyclical stocks to outperform.
One of the features of the market is that overall returns have been driven by a small group of stocks trading on high price/earnings ratios.
“The market got a bit frothy,” AMP Capital head of equities Guy Elliffe says.
Stocks are trading at around 15 times expected earnings, compared to about 13 times a year ago.
“Some of the optimism the market’s about some of these more high-growth stocks is getting a little bit over-extended,” he says.
While NZ Shares are not in a bubble phase they will probably consolidate a little while earnings catch up to prices.
The company says there is a risk of PE contraction again as investors start to factor in lower earnings growth into their forecast.
“There’s nothing horribly alarming going on, but I just think on the margin it’s going to be challenging for companies.”
The pressure on company earnings will likely be across the board, though firms with exposure to the currency, which is in a downtrend, are probably in a “sweet spot,” he said.
For more on NZ shares watch this video with AMP Capital head of investment strategy Keith Poore. In the video he discusses yield, how momentum buying has driven the market and the outlook for the next state asset sale.
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