NZ shares still have distance to climb, says Milford

Milford Assets portfolio manager Mark Warminger

Fears the New Zealand sharemarket is becoming overvalued as it continues last year's run into the new year are overstated, and the market is "far from frothy", Milford Assets portfolio manager Mark Warminger says.

Writing in the fund manager's blog, Mr Warminger says the last few years have been tough for corporate earnings and that even though analysts know earnings have stabilised, they are too reluctant to forecast improved profits as the six-monthly earnings reporting season looms next month.

"We believe that earnings are likely to exceed expectations over the next year as the economic recovery continues and gains pace," he writes. "If that happens, what looks at present like a high average price/earnings ratio for New Zealand shares of around 15.5 times will be somewhat lower."

The average PE ratio for the market over the last decade has been 14.7 times.

"Analysing another valuation metric would suggest the New Zealand equity market is currently fair value on a dividend-yield basis, with the current prospective dividend yield equal to its 20-year average.

"Comparing the equity market dividend yield to current government bond yields would suggest the New Zealand equity market is cheap," Mr Warminger argues, and applies the same logic to other metrics such as equity risk premium and discounted cashflows.

"The current investment climate of low interest rates, low but stable growth and most valuation metrics showing no signs of frothiness argues well for continued gains as earnings improve and the PE multiple expands to reflect the current environment."

Fears of an overheated local equities market followed last year's 25 percent rise in the NZX 50 Index of leading stocks, with the rise continuing in the early part of this year.

The NZX 50 briefly hit a five-year high point of 42204.407 on Monday, in very light trade affected by Auckland and Australia anniversary weekends.


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The market has a lot of catching up to do yet.


Stick to investment property. Better yield, able to use leverage, no mismanagement/governance risk, claim tax losses and then I can gift it to a trust to get the government to pay for me to move into a rest home.
Can't go wrong with property.


Residential property prices in New Zealand are well and truly in bubble territory, particularly in Auckland. The only thing that is holding prices up at the moment is a severe lack of supply. That situation will change.

When you hear almost daily advertisements on radio for property seminars and property gurus offering an easy pathway to riches, then you know the game's up. That's the sharemarket equivalent of stock tips from the shoeshine boy, the taxi driver and the hairdresser. It's time to get out.


"That's the sharemarket equivalent of stock tips from the shoeshine boy, the taxi driver and the hairdresser."

Yes, much better to ask a cat.


One factor that is potentially a spanner in the works is the ease with which foreign investors (for whom the market is still cheap) can play property here in NZ. Herne Bay offers a good easy return on investment for these. I have a number of Asian friends looking at NZ property at the moment.

As long as there are no restrictions around residency or citizenship this is likely to remain a factor.


Genius! Love it... Where else do you do stand up?


Bludgers such as #2 should be run out of town!


I think(/hope) they were actually being sarcastic about the way in which property is viewed as a safer investment because of the system that operates around it.

Or is that just me?


Fletcher Building at 34 p/e ratio.
Market undervalued?
Sounds like Milford have purchased shares and are trying to talk up the market so they can sell without a loss.


Milford has consistently been right through all the ups and downs of the last five years or so. I think they call it as they see it, both on the upside and downside.


That's because people expect the 'E' in P/E to increase strongly, thus bringing the P/E down. We will see at their next announcement.


Share price index to drop 10% over 2013. Property to fare even worse.


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NZ Market Snapshot


Sym Price Change
USD 0.7740 -0.0003 -0.04%
AUD 0.9511 0.0005 0.05%
EUR 0.6324 -0.0002 -0.03%
GBP 0.4954 0.0001 0.02%
HKD 6.0039 0.0001 0.00%
JPY 92.5100 -0.0050 -0.01%


Commodity Price Change Time
Gold Index 1195.4 -2.890 2014-12-19T00:
Oil Brent 61.4 2.110 2014-12-19T00:
Oil Nymex 57.1 2.740 2014-12-19T00:
Silver Index 16.0 0.090 2014-12-19T00:


Symbol Open High Last %
NZX 50 5518.5 5545.0 5518.5 0.17%
NASDAQ 4752.6 4782.1 4748.4 0.36%
DAX 9901.3 9901.3 9811.1 -0.25%
DJI 17778.0 17874.0 17778.2 0.15%
FTSE 6466.0 6566.9 6466.0 1.23%
HKSE 23158.3 23189.6 22832.2 1.25%
NI225 17511.0 17621.4 17210.0 2.39%