Are N.Z. Equities too expensive ?

[value_investor]

Of course it's very expensive. Keep in mind we are in perhaps the greatest bull run in history so it logically it has to be unprecedented. You've got the perfect cocktail of tailwinds supporting this one.

Lets see, a global bull run supporting it locally, bringing in more money from overseas. The sentiment overseas is very good, I can't remember the last time where we had growth in unison in other countries on a macro level. No doubt more money for the NZX companies.

We have had some favourable business conditions in NZ, with very few trade sanctions or restrictions in the past 4 national governments. Kiwisaver and the impending super fund contributions coming back as well adds to the equation. I'm sure I'm missing a whole lot out.

Keep in mind, when markets are going well, investors start to believe that it will always be up for them and treat it like a money machine constantly pumping more in. When the market is down, pessimism takes over and investors start to exit the market. In fact, in the long term, both sides are never correct and the market just fluctuates up and down.

[JeremyALD]

Seems ok value to me. We have some pretty good yield and imputed divies. It's hard to find any screaming buys, but overall you can still find a fair bit of value. I wouldn't be surprised to see a flat year, but much like the housing market there seems to be factors that should keep share markets up this year

[Baa_Baa]

Of course it's very expensive. Keep in mind we are in perhaps the greatest bull run in history so it logically it has to be unprecedented. You've got the perfect cocktail of tailwinds supporting this one.

Lets see, a global bull run supporting it locally, bringing in more money from overseas. The sentiment overseas is very good, I can't remember the last time where we had growth in unison in other countries on a macro level. No doubt more money for the NZX companies.

We have had some favourable business conditions in NZ, with very few trade sanctions or restrictions in the past 4 national governments. Kiwisaver and the impending super fund contributions coming back as well adds to the equation. I'm sure I'm missing a whole lot out.

Keep in mind, when markets are going well, investors start to believe that it will always be up for them and treat it like a money machine constantly pumping more in. When the market is down, pessimism takes over and investors start to exit the market. In fact, in the long term, both sides are never correct and the market just fluctuates up and down.

That's a nice concise summary imo, who cares about the precise details, it'll do you head in trying to finesse the minutiae.

The winners will be the ones who understand what they're involved in and act decisively on the change in sentiment, when it happens, which it will. i.e on this leg of the cycle, when to sell and take profits. It is well past a 'buy and pray' market.

Routs are always alarming on the first day when you wake up and the US market or others have crashed a few % points, but the really big bear takes weeks, months or years to unfold (real crashes happen in slow motion) so there's plenty of time to divest and record a profit that is not quite so impressive as it was at the highs, but much more impressive than when it finally hits the lows, and significantly more impressive than riding out the whole cycle waiting a half decade or a whole decade to make a recovery to par value .

Personally, I don't think buying into anything at the moment is particularly sensible without ... an acute awareness of company fundamentals and in particular market sentiment, a complete detachment from emotion, and an ability to act immediately with conviction. Which most don't have, as far as I can tell. It's big ask, we're humans after all.

I'd encourage people to research 'momentum trading', not to be a trader per se, but to acknowledge that equities markets go up and down, and with it opportunities are presented to capitalise on upside and avoid downside. It might require learning some new skills, but it's worth it.

[minimoke]

Heard a headline on the wireless this morning something about the economist (?) who a few years back said "NZ is a rockstar economy" reckons 2018 and 2019 will still be very good years

[vici]

Good points all Beagle, value investor, Baa baa.
It's expensive sure, but is it too expensive?

Agree with the tailwinds helping throw more fuel on the fire.
Interest rates is the other big factor, that's ultimately what you're trying to beat isn't it? The risk free rate, or what you might safely get from the bank. With interest rates as historically low as they are, getting your ~3.5% at the bank where else do you put your money to get a better return?
Think there is still relative value to be found, but like Baa baa says I'd be exercising extreme caution with a bunch of stocks pretty highly overvalued/ optimistically fully priced.
When the crash eventually does come the price risk in these stocks means they have the most to lose, so as an investor need to have pretty strong conviction in the fundamentals and overall strength of the business to come out the other side.

[winner69]

FNZC reckon that the forward looking PE of the NZX is 22.7

The median PE is far lower at 15.6 with the gap of this to the average PE continuing to be at near record levels. Suggests that small and mid cap stocks have been left far behind and unsurprisingly this is where many attractive opportunities exist

Don’t worry about overall market valuations - be a stock picker and run with those


What’s the earnings growth of the NZX - might surprise some

[winner69]

Many say the high valuation multiples make sense where interest rates (low) are where they are today

But could it be that interest rates are low because (economic) growth rates are also relatively low.

Think about those two statements - they suggests no valuation premium (ie a high PE) is justified

Result could be medium / long term market returns will be subpar

Interesting

[percy]

Many say the high valuation multiples make sense where interest rates (low) are where they are today

But could it be that interest rates are low because (economic) growth rates are also relatively low.

Think about those two statements - they suggests no valuation premium (ie a high PE) is justified

Result could be medium / long term market returns will be subpar

Interesting

As always it pays to remember PEG.ie PE ratio divided by growth or PEGD ie PE divided by growth plus dividend.
Paying a PE twice to three times earnings is scary to me.
I am however, not able to find NZ stocks at present where the growth is higher than the PE ratio,so care is needed.
Non profitable companies with high goodwills, and or intangibles that taken out of their balance sheet, leaving no shareholder equity,I avoid.
I also look for companies that have the capacity to keep paying increasing fully imputated dividends.
Does not leave a lot of companies in NZ to invest in.!

[minimoke]

The other thing worth remembering, in my view is our love affair with property as an investment vehicle. As rental yields reduce there's a chance property owners, or those thinking of property will move to shares where the overall runs could be much better. This off course keeps demand for shares up.

[winner69]

As always it pays to remember PEG.ie PE ratio divided by growth or PEGD ie PE divided by growth plus dividend.
Paying a PE twice to three times earnings is scary to me.
I am however, not able to find NZ stocks at present where the growth is higher than the PE ratio,so care is needed.
Non profitable companies with high goodwills, and or intangibles that taken out of their balance sheet, leaving no shareholder equity,I avoid.
I also look for companies that have the capacity to keep paying increasing fully imputated dividends.
Does not leave a lot of companies in NZ to invest in.!

Appears forecast average earnings for NZX companies this year is about 6%/7% so you wouldn’t be buying the Index at a PE of 22 odd would you percy

Like you stick to stocks that meet our criteria and don’t worry about the Index (too much)