Falling interest rates keep sharemarket on the boil

Press, 7 May 1984, Page 30

Falling interest rates keep sharemarket on the boil

Adrian Brokking

BW

Falling interest rates continue to stimulate the New Zealand sharemarket, and share prices recovered a further 3 per cent last week, as the N.Z.U. index closed on Friday at 1376 : less than 35 points — or some 2.5 per cent — below its peak.

Prices have bounced back about 12 per cent during the last month, which was broken by an extended Easter holiday, as turnovers remained high. Average daily volumes for the previous three weeks have been 2.9 million shares, 1.9 million, 3.2 million, and 2.8 million last week, and it would appear that sales of 2.5 million shares a day is becoming the rule rather than the exception. Within a few weeks we may expect the first of the preliminary March 31 profit reports. Some market watchers think that these may give the market a clear direction, but others feel that the improved business confidence and the expectation of good profits have already been discounted.

They argue that, although the market is buoyant at present, to sustain its momentum some extraordinary events will be needed — such as a dramatic upsurge of take-over activity similar to last year,

or a truly substantial fall in interest rates. At the same time those observers would say that “downside risk” is minimal, because of the high liquidity and the business climate generally. No fewer than 39 issues reached a new high during the week: with two, exceptions, most would be considered second-line stocks, although some represent interesting situations. Ivon Watkins-Dow gained 90c during the week, apart from the 100 c rise by BHP the largest gain on the market.

Traditionally, investment analysts regard the chemical industry, if not an economic bell wether, a good average indicator of the health of an economy, because it provides so much of the raw material for other industry. In this case, however, there must be more special reasons. The company is in its second financial guarter, and has predicted a much higher half-yearly profit. The company has always been generous to its shareholders, and maybe the market expects something extra in the way of reward.

New Zealand Forest Products shares put on 27c to reach a new high of 357 c. The shares are no doubt reacting to the strength of international pulp prices. Contacts in Singapore told

“The Press” that they expect an acute shortage of all types of paper by September.

Life-assurance companies came under fire from the Prime Minister and Minister of Finance, Sir Robert Muldoon, about their mortgage rates. These warnings, of course, only marginally affect the two listed insurance companies, N.Z. South British Group and National Insurance Company.

National Insurance rose no less than 58c during the week to a new high of 480 c; a significant increase in third-quarter profit — in spite of Southland flood claims — was forecast to add to the much-improved half-yearly profit of $3.8 million. NZSB featured with a rise of 12c during the week, some of it no doubt in sympathy with National, but most probably in reaction to the news of the name change. The bullish interpretation here is that the reorganisation of the company has been completed, and. that benefits are sure to follow.

Investment Finance, the new listing, touched a new high of 110 c during the week, in reaction to the news that maiden dividend would be brought forward after a very strong performance in the first five months.

Other financiers or investment companies that reached new highs were Farrier Waimak, Regina, Charter, Chase, and Commercial Securities — some of these more on speculation than performance. It would appear that in the present market mood a company only needs to put the words “investment,” “finance,” or “securities” in its name for the shares to go through the roof. Alex Harvey became an innocent victim of the Aus-tralian-New Zealand investment row, when its bid for Smith and Smith failed to be approved by the Overseas Investment Commission. (AHI is majority Australian-owned). This bid is now “on ice.”

Some 10 months ago, in retaliation for the refusal of the Australian Federal Treasurer, Mr Keating, to relax Australia’s investment rules, Sir Robert Muldoon issued a directive to the Overseas Investment Commission in Wellington that it was not to approve any Australian investment proSls to take over New and companies or do business here without reference to him.

Since then about 160 proposals have been received from Australian companies, but only 35 have been approved. Allegra Park Stud sprinted a way to a good

start when the stags sold as high as 115 c on the first day of listing, but proved staying power by adding another 20c to close on Friday at 135 c. Coal and Energy N.Z., Ltd, reported last week a $193,441 net loss for the 1983 year, but is far from downhearted, as the loss reflects the cost of bringing four mines into production, and extensive marketing efforts. Moreover, during the period sales more than doubled, and gross operating profit improved from $115,280 to $400,102. Two prospective new listings, Angus Corporation, Ltd, and Fortuna Corporation, Ltd, featured in the news. Angus, better known north than south, is seeking control of Scott Group, which would give it back door listing.

The chairman of Angus, Mr W. Nuttall, said that the company had been looking for a structure for further development. Scott shares rose to a new high of 202 c.

New Zealand’s biggest toy company, Fortuna Corporation, to be listed this week, purchased the toy division of Bing Harris Sargood. The BHS giftware division was purchased by Sales Development, Ltd, a subsidiary of Henry Berry. This leaves only the BHS haberdashery division to be disposed of.