THE MARKET Buoyed by selective overseas buying

Press, 13 July 1985, Page 22

THE MARKET Buoyed by selective overseas buying

By ADRIAN BROKKING Against all predictions the New Zealand sharmarket defied once again all fundamentals this week as a few keenlysought blue chips sent Barclays’ index of industrial shares soaring to new highs on Thursday and yesterday. The industrials index closed yesterday at 1718.29 for a rise of 39.52 points — 2.4 per cent on the week, and the market capitalisation is now 15.5 per cent higher than at the beginning of the calendar year. By most “fundamental” criteria the price trend should be downwards. Inflation is as high as it has ever been, economic activity is expected to decline, the New Zealand dollar is maintaining a very firm level and interest rates are taking their time to come down. The three big gainers of Thursday, Fletcher Challenge, Brierley Investments, and NZI Corporation eased yesterday, but all reached new highs during the week, and it was their movements mainly that pushed the index to its record high. Fletchers sold down to 332 c in the morning, but closed steady at 340 c — 7c up on the week. Brierleys lost 5c yesterday, but put on 13c for the week to close at 515 c, and NZI, at 218 also 5c down on the day before, rose no less than 27c during the week. These three shares attracted a fair bit of buying interest from Australia, which seems to confirm the often-expressed belief that New Zealand shares are cheap by international standards. However, analysis reveals that putting it like that is too superficial. Average P-E ratios in the four markets of interest to New Zealand investors, New Zealand, Australia, Wall

Street, and London, are remarkably similar. This goes both for the arithmetic mean, and the median. The former is around 12 in all markets, and the median around 9. The latter shows that the dearer shares have disproportionately high price-earn-ings ratios. Brierley shares with a P-E ratio of more than 18, and Fletchers, with a P-E ratio of more than 13 are above the mean, and NZI Corp, which came close to a P-E of 11 during the week, in obviously catching up fast. There has been talk of Australian listing by Brierley, or a move of this nature. In any case, what is going to be interesting is watching the possibilities for arbitrage in shares listed both in Australia and New Zealand. As for comparative market levels, perhaps a better average to use might be the mode — in statistics the quantity having the greatest members. However, statistics on this kind of thing are hard to come by. The four heavyweights may have done most to push the market higher (NZ Forest Products did its big and also reached a new high for the week with a 5c rise to 285) but they were assisted by a wide cross-section of other shares. Apart from the shares already mentioned, Waitaki, Watties, Ceramco, New Zealand Steel, Dominion Breweries, and Rothmans were market leaders at their highs for the year, 27 other stocks also are at record levels. Smiths City Market gained no less than 100 c during the week after a better-than-ex-pected result, a dividend in-

crease, a 1:5 bonus issue, and a share split. The company has been recommended as a good investment by sharebrokers as far away as London. Other large price rises were Colonial Motor 45c, Jarden 38c, Henry Berry 36c, Otron 50c, Unity 30c, and Rainbow 28c. After the markets closed yesterday Rainbow’s chairman announced a 1:5 bonus and said: “Rainbow is trading ahead of budgeted forecasts." The company completes its first full year as a publiclylisted company on July 31.