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New Zealand Equity Monthly October 2024

Start of rate-cutting cycle provides promising signs for New Zealand equities

Tuesday, November 19th 2024, 9:19AM

By Tim O’Loan, Research Analyst, New Zealand Equities

Market shows promising reaction to central bank’s dovish pivot

After a long period of elevated interest rates, New Zealand’s equity market now stands at the beginning of a rate cutting cycle, with the Reserve Bank of New Zealand (RBNZ) having lowered the Official Cash Rate (OCR) at its last two  monetary policy meetings. After hiking the OCR to 5.5% in May 2023 and then standing pat for over a year in order to  curb inflation, the RBNZ started the cutting cycle with a 25-basis point reduction to 5.25% in August 2024. That was followed by a more substantial 50-basis point cut in October 2024, bringing the OCR to its current level of 4.75%. The RBNZ’s shift to a more dovish stance already appears to have buoyed New Zealand’s equities at this early stage of the  cycle, with examples including signs of strength in the retirement village and rental sectors. The market as a whole has been delivering strong returns of late, with the S&P/NZX 50 Index of New Zealand’s largest companies by market  capitalisation having risen by approximately 16% towards the end of October 2024 compared to about 12 months  before. At the same time, data show that New Zealand’s consumers price index (CPI) eased to an annual rate of 2.2% in the September 2024 quarter¹, putting it only slightly above the mid-point of the RBNZ’s target range of 1-3%.

Lower interest rates and softer CPI seen favouring equities

We view both the lower OCR level and the softer CPI reading as signs of a more favourable environment for the stock  market going forward. In our view, equities generally respond well to low interest rates for several reasons. The first  of these is the lower cost of debt interest as it enables companies to get some relief on fixed debts as their debt rolls  over. Secondly, given that consumers also benefit from relief on debt from lower rates, we feel that these cuts in the  OCR are likely to make consumers more confident about spending. The third potential benefit is related to investment  allocation decisions. We think that investors seeking yields are likelier to move their money out of low-risk vehicles  such as term deposits and into dividend stocks when the OCR is on a downward trajectory. This is because lower  interest rates tend to encourage investors to take on more risk in order to achieve similar levels of income. In our  opinion, these factors are all likely to be positive for equities.

Outlook may be brightening following weakness of last reporting season

New Zealand’s last earnings reporting season, which occurred around August, reflected a low point in the economic cycle, with companies reporting weak results and some firms missing earningstargets. Even so, although the October ANZ Business Outlook survey² painted a picture of continued pain in some areas, it also provided signs of a brightening outlook. For example, companies reported depressed levels of business activity and employment, but forward-looking confidence indicators in the survey were brighter, with business confidence hitting a fresh 10-year high. In our view, this growing optimism is a product of New Zealand’s lower interest rate environment.

 

¹https://www.stats.govt.nz/information-releases/consumers-price-index-september-2024-quarter/

²https://www.anz.co.nz/about-us/economic-markets-research/business-outlook/

 

Important information: This document is prepared by Nikko Asset Management Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution  only under such circumstances as may be permitted by applicable laws. This document does not constitute personal investment advice or a  personal recommendation and it does not consider in any way the objectives, financial situation or needs of any recipients. All recipients are  recommended to consult with their independent tax, financial and legal advisers prior to any investment. 
This document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments or  participate in any trading strategy. Moreover, the information in this document will not affect Nikko AM’s investment strategy in any way. The  information and opinions in this document have been derived from or reached from sources believed in good faith to be reliable but have not  been independently verified. Nikko AM makes no guarantee, representation or warranty, express or implied, and accepts no responsibility or  liability for the accuracy or completeness of this document. No reliance should be placed on any assumptions, forecasts, projections, estimates or  prospects contained within this document. This document should not be regarded by recipients as a substitute for the exercise of their own  judgment. Opinions stated in this document may change without notice. 
In any investment, past performance is neither an indication nor guarantee of future performance and a loss of capital may occur. Estimates of  future performance are based on assumptions that may not be realised. Investors should be able to withstand the loss of any principal investment.  The mention of individual securities, sectors, regions or countries within this document does not imply a recommendation to buy or sell. 
Nikko AM accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this document, provided  that nothing herein excludes or restricts any liability of Nikko AM under applicable regulatory rules or requirements. 
All information contained in this document is solely for the attention and use of the intended recipients. Any use beyond that intended by Nikko  AM is strictly prohibited.

Tags: Nikko AM

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 4.94 - - -
AIA - Go Home Loans 7.49 ▼5.79 ▼5.49 ▼5.59
ANZ 7.39 6.39 6.19 6.19
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 5.79 5.59 5.59
ASB Bank 7.39 ▼5.79 ▼5.49 ▼5.59
ASB Better Homes Top Up - - - 1.00
Avanti Finance ▼7.90 - - -
Basecorp Finance ▼8.35 - - -
BNZ - Classic - 5.99 5.69 5.69
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One 7.54 - - -
BNZ - Rapid Repay 7.54 - - -
BNZ - Std 7.44 ▼5.79 ▼5.59 5.69
BNZ - TotalMoney 7.54 - - -
CFML 321 Loans 6.20 - - -
CFML Home Loans 6.45 - - -
CFML Prime Loans 8.25 - - -
CFML Standard Loans 9.20 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼5.69 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 6.95 ▼5.79 ▼5.59 5.69
Co-operative Bank - Standard 6.95 ▼6.29 ▼6.09 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - ▼5.99 ▼5.89 -
First Credit Union Standard ▼7.69 ▼6.69 ▼6.39 -
Heartland Bank - Online ▼6.99 ▼5.49 ▼5.39 ▼5.45
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.60 6.65 6.40 -
ICBC 7.49 ▼5.79 ▼5.59 5.59
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 7.25 6.89 6.59 6.49
Kiwibank - Offset 7.25 - - -
Kiwibank Special 7.25 5.99 5.69 5.69
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society ▼7.94 5.95 6.09 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank ▼7.49 6.95 6.29 6.29
SBS Bank Special - 6.15 5.69 5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo ▼4.94 5.15 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.75 - - -
TSB Bank 8.19 6.49 ▼6.39 ▼6.39
TSB Special 7.39 5.69 ▼5.59 ▼5.59
Unity 7.64 5.99 5.69 -
Unity First Home Buyer special - 5.49 - -
Wairarapa Building Society 8.10 6.05 5.79 -
Westpac 7.39 6.39 6.09 6.19
Westpac Choices Everyday 7.49 - - -
Westpac Offset 7.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 5.79 5.49 5.59
Median 7.49 5.99 5.79 5.69

Last updated: 5 December 2024 10:06am

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