BROKER COMMENT Time for reflection

Press, 1 April 1989, Page 32

BROKER COMMENT Time for reflection

"The New Zealand share market opened for 1989 at 1838 on the Barclays index,” said Mr Simon Flood, of Egden Wignall and Company, in a comment on the first quarter of the year. "We began the year with promises of increased economic activity, lower interest rates, increasing business confidence and consistency from the then inconsistent Government. Last evening the Barclays Index closed for the final time this financial quarter at 1881. During the quarter it has been as high as 2098 from its opening low of 1838. “The quarter has not produced the foundation upon which a confident economy or share market could be based.

“The hang-over effects of the 1987 share market collapse are still being felt in a very real sense with the number of companies being placed in receivership growing noticeably during the past 3 months. The welldocumented oversupply of commercial CBD property has caused millions of dollars to be wiped from the value of many corporate property portfolios. The oversupply has created a buyers and tenants market where properties are being sold to offshore interests at massive losses to local vendors and their shareholders. Tenants have been able to negotiate previously unthinkable deals which have in many cases resulted in merely delaying the inevitable for several of our listed property companies who have found their cash flows evaporating while their interest commitments have continued to mount.

“The banking sector is another area where the effects of our boom/bust cycle has left an unprecedented trail of bad and doubtful debts. Two of New Zealand’s oldest and most established banks, NZI and the Bank of New Zealand, have again this quarter been reassessing the damage done through lending to companies who have found themselves in a much less buoyant economy than was present in 1985, 1986 and pre-crash 1987. This reassessment has lead in both cases to increases in their provisions for bad debts. “The quarter for the Bank of New Zealand has been a difficult one as not only have they had to cope with the reality of their bad debt crisis but they have also had the misfortune of being both a political and media football, in a game that has to date achieved nothing but damage to the bank’s previous image. “The news of the quarter has been dotted with intermittent good news; of special interest have been the tremendous profit results of the Brierley group of companies and

Fletcher Challenge, two companies that have successfully retrenched to core activities via an inspired strategy of liquidating peripheral assets and using the cash generated to either retire debt or expand in their specialist areas. "With the first quarter now history we must look to the remainder of the year and what it holds. The recently-released March survey of business opinion compiled by the National Bank points to increased inflation expectations (the first recorded rise since September, 1987), declining business confidence, and a fall in the activity outlook for the next 12 months. The bank believes that political uncertainty, and its implications for the direction of macro-economic policy provide the explanation. Since their report went to press the Government have released their economic statement, which, while loaded with political rhetoric was remarkably brief on specifics and did not inspire confidence in either themselves or the outlook for the economy.

“In an attempt to generate investor confidence in the market the Minister of Justice has just announced tougher requirements for our public companies. Mr Palmer appears not only to be shutting the proverbial door after the horse has bolted but is also now slating the market, its participants (both companies and the New Zealand Stock Exchange) who in 1985, 1986 and pre-crash 1987, were being paraded by the Labour Government as a glowing example of the success of their deregulatory entrepreneurial policies. “The N.Z.S.E. have just announced a new board of directors in whom the power will vest as opposed to the traditional council and executive structure. Three independent directors have been appointed from the wider commercial community. The change has been brought about the exchange’s desire to increase its efficiency and bring its operation into line with accepted international practice. “The one bright light on the horizon is the prospect of the America’s Cup Challenge scheduled for 1991, which if managed pro perly will result in a massive injection ot capital into many New Zealand business sectors.

“My main hope is that the excitement, the investment, and the opportunities bought by the cup will manage to reach the South Island. An increase in economic activity will bring life to our corporate and productive sectors which will create the desire to invest in the many real opportunities our market will then offer,” Mr Flood said.