MARKET CLOSE: NZ shares rise led by Xero, Spark; property stocks advance on rate cut prospect

New Zealand shares rose, led by Xero and Spark New Zealand, while the prospect of an interest rate cut tomorrow stoked demand for property-related stocks, which are typically held for their reliable dividends.

The S&P/NZX 50 Index gained 18.55 points, or 0.3 percent, to 6053.55. Within the index, 23 stocks rose, 17 fell and 10 were unchanged. Turnover was $211.8 million.

Xero led the market higher, rising 2.3 percent to $18.74. The volatile stock had been on a downward streak from a seven-month high in late-November, when several directors reduced their holdings.

"Today seems to be a little bit of a reaction to that sell-off," said Nick Dravitzki, equity analyst at Devon Funds Management. "It's had reasonably chunky daily moves and it had quite a decent run up to the early $20s. Your view on Xero is predicated on its ability to acquire offshore customers."

Spark rose 1.9 percent to $3.20, ending a 7.6 percent decline since the start of the month.

Property stocks gained ahead of tomorrow's Reserve Bank policy review, which a majority of traders are betting will see governor Graeme Wheeler cut the benchmark rate back to a record-low of 2.5 percent. That increases the appeal of stocks that deliver reliable dividends, such as property investors. Kiwi Property Group gained 1.1 percent to $1.385, Vital Healthcare Property Trust rose 1.1 percent to $1.90, Property For Industry advanced 1 percent to $1.595 and Argosy Property increased 0.9 percent to $1.155.

"All this week, there's been quite positive moves across the property stocks which may be a view on interest rates," Dravitzki said. "The listed property sector tends to be valued on their yield. They're defensive in that their earnings are pretty predictable, they've done relatively well over the past few days when the market's been weaker."

"The relative yield of a property stock is materially higher than the return you're going to get from a term deposit, and as investment rates come down that feeds through to shorter term cash rates and those things look more attractive."

Power stocks fell for a second day. Genesis Energy was the biggest decliner on the index, shedding 1.7 percent to $1.89, Mighty River Power dropped 1.1 percent to $2.69, and Meridian Energy fell 0.7 percent to $2.235.

"My best guess is renewed concerns about the future of Tiwai," Dravitzki said. "Aluminium is continuing to decline and the currency has been rising against the US dollar over the last three months. Tiwai is probably just below cash break even now, the risk there is a renegotiation announcement which would cause short term ructions."

The Tiwai Point aluminium smelter is the country's biggest user of electricity, and national grid operator Transpower today said the prospect of its exit combined with the scaling back of gas and coal-powered generation creates uncertainty for security of electricity supplies towards the end of the decade.

Units in the Fonterra Shareholders Fund were unchanged at $5.75 ahead of Fonterra Cooperative Group's updated forecast on the farmgate payout tomorrow.

(BusinessDesk)