THE MARKET Three new records in busy week

Press, 27 July 1985, Page 22

THE MARKET Three new records in busy week

By ADRIAN BROKKING The New Zealand sharemarket continued its relentless upward march this week, with only a small hiccough that barely caused it to falter for a moment. A minor correction on Thursday afternoon and Friday morning soon ironed itself out when Australian sharemarkets opened firm, and the share prices of the New Zealand listings was especially strong. Strong support for the country’s two biggest companies, Fletcher Challenge and Brierley Investments, that dominate Barclays index of industrial shares, was the cause for most of its rise. Both are listed in Australia, as is NZI Corporation (also a large contributor to the index) and when their prices rise over there, they will rise here regardless of the state of the local market. The possibilities for arbitrage see to that. If Fletchers is selling in Sydney at Aust.26oc. Aust, and this is because of the exchange rate, the equivalent of 346 c

here, then if it opens in New Zealand — as it did on Thursday — at 342 it will, after Australian markets open, soon be bid to 346 as indeed happened. Otherwise some very easy money could be made by buying in New Zealand and selling in Sydney which is what arbitrage is all about. Four cents a share may not seem a lot, but it is money for jam, and as these Australian traders push large sums around, it all adds up: 100,000 times 4c is $4OOO. As there is little risk, that is fine if you can do it often enough. The phenomenal strength of the New Zealand dollar has dominated the markets. For instance, against the Australian dollar it gained 4.5 Aust, cents in three days. This would appear to be a disadvantage to Australian buyers, who are buying dear. However, the sharemarket is more volatile than other markets, and it is expectations that count. If Australian buyers expect their currency to fall further vis-a-vis the New Zealand dollar, then buying New Zealand shares makes sense. If the share prices also rise, you are making it twice over. Needless to say, the process can reverse itself, when the fall in the market might be rapid and dramatic. This is one of the reasons why the exposure of the New Zealand sharemarket to international market forces makes it so much more volatile. The strong New Zealand dollar is good for importers but bad news for exporters. This was reflected in the remarks by company chairmen during the week. Fisher and Paykel, a substantial exporter of whiteware across the Tasman, is

beginning to feel the pinch. Less than a year ago the directors were extremely confident that they would compete successfully across the Tasman, but at the annual meeting this week the chairman, Mr Maurice Paykel, painted a gloomy picture. The slowing of the New Zealand economy was already being felt by consumer industries, he said. The devaluation was starting to bite and inflation was eroding real income. His company would not increase its profit this financial year, and sales for the first three months were marginally lower. The announcement by NZ Forest Products that it had shelved its planned $5O million sawmill project at Kinleith because of cash-flow problems did not go down well with the market. Salmond Industries has postponed a planned cannery in Palmerston North, because of high interest rates. Meat companies were in the news during the week: first Ariadne, the Brisbane investor, paid $l7 million for 43 per cent of R and W Hellaby, then Wattie Industries gained Commerce Commission approval to acquire a controlling interest in Waitaki NZ Refrigerating, our largest and one of our best-performed meat processors. Wattie already has 24.8 per cent of Waitaki, and intends, for the time being, to take its holding to 40 per cent. The Wattie directors said that they are successfully negotiating with the holders of several large parcels. Brierley Investment is known to have a holding of 8 per cent, and if a seller Wattie is already more than halfway there.