NZSX50 - Good News!

[BlackPeter]

Would an NZ residential property valuation peak and reversal into a property market downturn trend, facilitate a rotation into a secular share market bull cycle through multiple PE expansion ?.

http://www.nzherald.co.nz/business/n...ectid=11366443

http://www.nzherald.co.nz/personal-f...ectid=11366091

Interested in the view of others.

Well - I guess if you think that the shed in Ponsonby was expensive, than try to buy a similar sized slice of land in London, LA, Singapore, Hong kong or any other large town with enough jobs and business around.

Obviously - the so called Kiwi dream of owning a wooden box (called house) surrounded by another slightly larger wooden box (fence) to keep the neighbours and the sun light away doesn't make things better. Property prices could drop (or at least slower rise) if people would be prepared to live instead in (well build) apartment blocks like about anywhere else in the world in high density areas. Much more sensible, economical and environmentally friendlier, but apparently not acceptable in the land of the long white cloud.

So, not sure, whether I expect property prices (in general) to peak and drop - they might rise slower if & when more people flee the land than come back (though it didn't work under the last Labour government - people voted with their feet, but property prices were still rising).

Property prices might crash if some big industries crash (like e.g. in Detroit during the GFC). Not sure, though, if I see a similar risk in NZ. Obviously - local catastrophes are always an option, but neither option should have a bullish impact on the stock market.

I still could see the current share market bull to keep running for a long time. However - this would not be caused by money moving from property to shares. Much more relevant for this would be in my view the expectation of low interest rates for a long time, resulting in the acceptance of higher PE ratios for shares. But this is a different story for another day.

[bunter]

Very sharp decline in 5 year term deposit rates shown here http://www.interest.co.nz/chart/inve...-deposit-rates

Fell from 5.39% to 4.88% - in two weeks.

My valuation model adjusts for long term interest rates.
This drop increases valuations by approx 15%.

[Harvey Specter]

Very sharp decline in 5 year term deposit rates shown here http://www.interest.co.nz/chart/inve...-deposit-rates

Fell from 5.39% to 4.88% - in two weeks.

My valuation model adjusts for long term interest rates.
This drop increases valuations by approx 15%.

with this flowing through into mortgage rates the rbnz will need to react. Will be interesting to see if that happens.

[troyvdh]

I noted today that the NZ50 has gone gone up 2440 points in the last 3 years.
I only have a 3 year chart to look at.
Im sorry if has been discussed before but has that performance been replicated in the past.

I acknowledge that all fundamentals (% rates blah blah) indicate that the MKT "should perform well"...but gee my neck is beginning to hurt looking up at the likes of MRP and CEN.cheers

[MAC]

Does anybody feel like things are starting to get a little out of hand and we're perhaps due another correction?

Examples I hold;

1) CNU - Price now back at the same level as when it was paying a 10% dividend. Sure, uncertainty was factored in then, but to be back at that price already when uncertainty still looms is interesting IMHO.

2) HNZ - Great company and two bits of good news released recently. But look at the charts, the price has rocketed on mediocre volume.

Perhaps we're due another 15% shakedown?

It may be more selective, large cap dividend stocks just seem to have become too inflated over the last 6 months from offshore inflows boosting the NZ50.

At some point, who knows when, could be 2-3 months ahead of an anticipation of US interest rate hikes, all those inflows which have trickled in under the radar may well leave again, and really quite quickly.

It may be more of a case of a large cap dividend shake out than an across the board correction.

[BFG]

It may be more selective, large cap dividend stocks just seem to have become too inflated over the last 6 months from offshore inflows boosting the NZ50.

At some point, who knows when, could be 2-3 months ahead of an anticipation of US interest rate hikes, all those inflows which have trickled in under the radar may well leave again, and really quite quickly.

It may be more of a case of a large cap dividend shake out than an across the board correction.

I agree. As with the growth stock correction early in 2014 after overinflating, I suspect there will be a similar, selective correction here for divvy yield stocks. "Patience" has been removed from Fed minutes and interest rates will start going sooner than later...

[bunter]

Does anybody feel like things are starting to get a little out of hand and we're perhaps due another correction?

Examples I hold;

1) CNU - Price now back at the same level as when it was paying a 10% dividend. Sure, uncertainty was factored in then, but to be back at that price already when uncertainty still looms is interesting IMHO.

2) HNZ - Great company and two bits of good news released recently. But look at the charts, the price has rocketed on mediocre volume.

Perhaps we're due another 15% shakedown?

I sometimes compare the 80's market with today's.

As I see it, the 80's was a 'pure' share mania, not driven by any underlying factors.
Everyone was talking about and buying shares and borrowing to do so.
That share prices went up, and by at least 20% a year, was a given.

To me the current market is different.

Interests rates are low, and most of the 60-odd shares I follow are showing projected returns (div plus capital change) at least three times long-term bank rates.
NZ company profits (real profits, not 80's style investment profits) are generally growing.

There are some overhyped shares, and IMO the tech sector - PEB, DIL, VML, XRO, etc - is today's equivalent of Chase, Equiticorp, Judge, Rainbow, Fleur etc.
But the tech sector doesn't dominate the market like the 80's 'investment companies' did.

There are some dodgy sectors too - retail's having a shakeout, and rest homes look overpriced.

But compared to money in the bank, most listed companies actually look pretty cheap, and I reckon this bull market has got at least two years to go.

Maybe a 2010's share mania will develop, but I don't think the lunch rooms (or social media chatter) are showing that yet.
It's only 1984, if you like.

[Billy Boy]

I agree. As with the growth stock correction early in 2014 after overinflating, I suspect there will be a similar, selective correction here for divvy yield stocks. "Patience" has been removed from Fed minutes and interest rates will start going sooner than later...

I agree....
IMO, divvy stocks will hold up well.
When (Not if) the Fed starts to raise interest rates, A correction will begin.
A .25 basic points will not rattle markets too much, but more than that.... well??
A large interest rate hike will kill Europe and the Euro.
BB

[BlackPeter]

A large interest rate hike will kill Europe and the Euro.
BB

Depends on your definition of "kill" - and if it kills anything, than not the European economy. The Euro zone is quite self-sustained (i.e. there are not too many imports they really really need to buy, if they get too dear). Only essential thing I see is oil (and this is currently quite cheap, i.e. even a say 50% reduction of the Euro (much more, than anybody would expect) wouldn't kill them - would just bring for them energy prices back to where they have been 6 months ago.

Yes, the Euro would drop and subsequently we would see
- Germany would drive up its anyway buoyant exports - making life more difficult for anybody competing (US, China, SE-Asia)
- less European tourists in non-european destinations (e.g. SE-Asian and NZ tourism might suffer)
- European agricultural products drop (outside Europe) in price - not a problem for Europe, but a problem for its overseas competitors (like NZ).

So - maybe you should reformulate - a big interest rise in the US would weaken the Euro, which would help the European economy and damage its overseas competitors and suppliers (like NZ - agriculture, tourism)?

[percy]

I sometimes compare the 80's market with today's.

As I see it, the 80's was a 'pure' share mania, not driven by any underlying factors.
Everyone was talking about and buying shares and borrowing to do so.
That share prices went up, and by at least 20% a year, was a given.

To me the current market is different.

Interests rates are low, and most of the 60-odd shares I follow are showing projected returns (div plus capital change) at least three times long-term bank rates.
NZ company profits (real profits, not 80's style investment profits) are generally growing.

There are some overhyped shares, and IMO the tech sector - PEB, DIL, VML, XRO, etc - is today's equivalent of Chase, Equiticorp, Judge, Rainbow, Fleur etc.
But the tech sector doesn't dominate the market like the 80's 'investment companies' did.

There are some dodgy sectors too - retail's having a shakeout, and rest homes look overpriced.

But compared to money in the bank, most listed companies actually look pretty cheap, and I reckon this bull market has got at least two years to go.

Maybe a 2010's share mania will develop, but I don't think the lunch rooms (or social media chatter) are showing that yet.
It's only 1984, if you like.

Very much as I see the market too.
I do not hold any of the overhyped shares you mentioned.
The earnings season should provide evidence that some companies are performing well,and are not overvalued.
I also expect a lot will increase their dividends.