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NZ Shares

Government will have a big impact on shares.

Friday, February 21st 2003, 12:53PM

The market outlook for New Zealand shares is broadly positive, mainly because of generally more supportive international markets, a robust local economy, and an end to the plethora of share price collapses which were the number one headache for all investors last year.

By the end of the year, the potential impact of the New Zealand Superannuation Fund will become clearer, but it should be another positive. The influence of the Government may prove more widespread than the fund, with regulatory threats in airport and electricity sectors, among others.

New Zealand needs Australia to be kind to it this year – and not just on the rugby field! Many of our listed companies have a growing presence across the Tasman, and their respective share prices will not perform well unless the Australian operations contribute materially.

This year should see a global economic recovery (as global industrial production and earnings look to have bottomed in 2002). We expect a slowing in New Zealand’s growth, possibly lower interest rates, a more steady Kiwi dollar (as those interest rates ease) and a return to more normal attitudes to risk.

New Zealand's economic expansion should continue through 2003, although at the 3% rather than 4% level. And strong economic growth should deliver another year of solid profit growth for most New Zealand companies.

Bottom-up market earnings growth is projected to be a very healthy 15% in FY03, and approximately 10% in the following year. The February earnings reporting season should confirm that all is broadly on track. Analysts will be looking to see whether the stronger New Zealand dollar is affecting company’s earnings or whether management teams have been able to make changes to compensate, or have been protected by favourable hedging.

The New Zealand Superannuation Fund is likely to be a major buyer of New Zealand shares later in the year. The fund is designed to partly fund future superannuation costs by building up a large investment fund over the next few decades. The NZ Super Fund, a tax-payer funded investment vehicle, will enter the market around September 2003.

Assuming a 10% benchmark weighting in New Zealand share, the fund will immediately be required to invest $200 million in the local market which is likely to create upward pressure on share prices. Ongoing fund flows will probably be over $200 million annually, providing natural demand for shares, in a market with tight liquidity.

Central Government looks to be taking a more active role in many sectors of the economy and are certainly having an impact on listed companies.

The NZ Super Fund will probably be the biggest influence over the next few years but also creeping regulation will be some concern.

The electricity sector and airports (particularly Auckland International Airport) are currently facing the prospect of some form of price controls thanks to Commerce Commission reviews. The Government may sanction the partial re-nationalisation of Tranz Rail by acquiring the railtrack infrastructure. And almost incredibly, lower competition and therefore higher prices look likely to prevail with the Government giving the green light to Qantas to take a minority, but surely influential, stake in Air NZ.

The “Australianisation” of many of our listed companies will continue and possibly intensify in 2003 and beyond. Three of NZ’s largest listed companies need to do well in their respective and sizeable Australian operations before their share prices will really begin to move. Telecom needs AAPT to recover, Fletcher Building needs to show it can efficiently operate the recently acquired Laminex Holdings and The Warehouse Group needs to turn positive sales momentum in its Yellow-Sheds into a meaningful bottom-line contribution.

Investors were in no mood to tolerate even the slightest disappointments last year, and falls of up to 70% seemed to be the norm for those stocks that did disappoint. Baycorp fell 70% while stumbling in its merger with Data Advantage; Tower fell 63% as earnings and strategy flailed and Tranz Rail’s woeful operating performance wiped 70% off its share price. Although Telecom’s share price slipped a mere 15% as AAPT continued to struggle, its large weighting in the NZSE40 had a big impact on most portfolios and overall market returns. So, avoiding these and other similar disasters was the key to good performance last year and we hope there won’t be too many in 2003!

The demutualised NZSE’s intentions to boost the NZ sharemarket by attracting more companies to list, by bolstering disclosure requirements and broadening the involvement in the exchange should be positive for investors. Indeed, the NZSE itself plans to list this year as does Turners & Growers, Jade Software and perhaps TruTest Corporation, among others.

There are many interesting issues for investors to consider at the company level for 2003: Among those of most interest seem to us include whether the Briscoe Group can maintain its superb sales and profit momentum; How will Infratil fare in its intentions to develop more secondary airports in Europe? Can Theresa Gattung’s team generate a meaningful contribution from and return on its Australian investment? How will F&P Appliances go in its ongoing effort in Nth America and new business in Europe? Will Graeme Hart win-over the Goodman Fielder Board and shareholders? Will Canadians take to buying jewellery from Michael Hill? Can Andrew Mohl turn the AMP around and what will become of the Perry, GPG, Rubicon, Fletcher Forests sagas? No doubt other interesting corporate issues will emerge during the year, giving investors plenty to consider beyond the normal market goings-on.

Warren Couillault is an investment manager with Fisher Funds Management

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

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