THE MARKET Air of nervousness at end of year

Press, 20 December 1986, Page 29

THE MARKET Air of nervousness at end of year

By

ADRIAN BROKKING

The New Zealand sharemarket yesterday closed for the year on an easy note, although Barclay’s index of industrial shares rose 1.11 points to 3786.70.

That is 99.2 per cent up on last year’s closing level, and 104.2 per cent above the low of 1986 — 1854.33 reached on January 20 — but 125.69 points or 3.2 per cent below the year’s high of 3912.39. Once again trading volume was close to 10 million, with the total for the week 50.3 million.

Although the large numbers of new floats and listings, and the string of “don’t sell” notices appear to indicate a state of optimism and confidence, the year ends on a note of general uneasiness. Nervously high interest rates, a high US dollar exchange rate, confused money markets, doubts on the level of taxation receipts, and uncertainty on the economic front have made many investors a little jittery.

Confirmation that the Securities Commission will hold a formal inquiry into insider trading may have contributed to this feeling. Certainly there is a conflict between confidence and uncertainty, as evidenced by the many little bull runs by the sharemarket in the last two months that were all-too-quickly aborted. The year will go down in New Zealand business history as the year when New Zealand really leapt into the international fray, with more and more New Zealand companies listed on overseas exchanges, and more significantly, making substantial investments offshore.

But perhaps more important is the degree of confidence overseas financial markets have in the New Zealand econ-

omy. Next calendar year will be a testing time for the economy and therefore the Government. For investors in the sharemarket the past year has been beyond belief, with Barclay’s index of industrial shares being doubled by November 11 — peaking at 3912.93 — on a total volume 42 per cent higher than last year. In fact, many novices thought that all that was required to make money was to buy shares — any kind of shares. Even some old hands were converted to this belief.

Next year a bit more skill could be needed, and it will almost certainly be harder to sort out the winners from the losers.

Equity investors may have to get used to the idea that life is not one continuous bull market, and that both selection and timing will assume greater importance. The present weakness of the market was shown up by the fact that a number of events that a few months ago would have sent the markets in to a frenzy passed almost unnoticed this week. Robert Jones Investments announced on Wednesday that it had bought 44 Wall Street in New York and that it was making a one-for-ten cash issue and a scheme by which shareholders can lock up their shares for chosen terms to earn bonus issues.

The market greeted it all with a mild raspberry, and knocked 30c off the value of the shares which are now selling at their lowest level for seven weeks.

Brierley Investments, Capital Markets, and the Bank of New Zealand have formed European Pacific Investments SA to act as a specialist banker in Europe. Only some 3 million shares will go to the pub-

lic, and must be traded either as bearer shares listed on the Luxemburg exchange, or in New Zealand to the extent that they are registered in this country. Once again, the announcement struck the market with a rather dull thud and Brierleys was fairly steady during the week, but Capital Markets lost 29c since the news.

Most of all, the promising oil find in the Kupe South No. 1 well failed to stir the market.

The splendid interim profit reported by Smiths City Market was the highlight of the week, but once again the market paid no attention and left the price of the shares unchanged. Fletcher Challenge announced that it will increase the value of its bid for NZ Forest Products subject to certain conditions and once Commerce Commission approval has been obtained. Meanwhile, the NZFP directors are urging shareholders not to sell. Also on the take-over front, the proposed merger between McConnell Dowell Corporation, Ltd, the construction contractor, and National Pacific Corporation, Ltd, the insurance and financial services group, has been abandoned for lack of sufficient common ground between the two companies.

However, those analysts that work by charts believe that the index is poised for a break-out on the up side, as the chart had formed a flag formation which had its top line pierced during the week. This is regarded as a bullish signal.

If New Zealand were to gain the America’s Cup we would certainly see an upsurge of confidence throughout the nation. It could certainly spark the new bull market of 1987.