NZSX50 - Good News!

[winner69]

Bargain hunters starting to come out of hiding

Relax .....No worries

Better still join them .... KEEP ON BUYING one of the top selling books on Amazon

[alokdhir]

Yep and now with hindsight..it is easy to see those warnings turned out to be real.

Right!!!...second wave capitulation in this maturing Bear Market cycle (probably still stage 2 )..when will this latest rout stablise? nobody can predict 100%..
From a chartist perspective the current pattern looks to present a line in the sand somewhere around 4500 (target pricing). This figure has the best odds of a temporary bottoming out and resulting in maybe a Bear Market correction (sucker rally)..that's all just better odds...Need a few rabbits feet, optimistic crystal balls, other lucky charms.....

Attachment 13785

If the Bear market rally starts from most probable target of 4500 then what can be its reasonable or most likely upside target ?

[couta1]

Bargain hunters starting to come out of hiding

Relax .....No worries

Better still join them .... KEEP ON BUYING one of the top selling books on Amazon

Thunderbirds are Green on the futures, wait for the bounce back.

[Nor]

There is a well signaled correction under way. But there are some aberrations. The POG in $OZ increases due to currency movement, while the POG in US$ decreases. But the OZ gold miners instead of showing strength follow Wall St. Logical.....illogical.... or back up the truck.

Gold's up over 13% in $NZ since about a year ago according to my rough calc. Better than TDs.

[SailorRob]

Good to see people know the difference between the NZ capital market and the gross market. Good Post from winner couple of pages back. Presume you're taking about Brian Gaynor.

[thebusinessman]

As a very basic test, linear regression on NZX50C shows we're below two standard deviations from the 10 year average - which would indicate a pretty big oversell. However, stretch it out to 15 years (incorporates our last big drop 2008/2009) and we're just under the average. Either way, long-term investors probably have an opportunity.

Any TAs want to tell me how valuable or not a basic regression is for long-term views?

[Dassets]

As a very basic test, linear regression on NZX50C shows we're below two standard deviations from the 10 year average - which would indicate a pretty big oversell. However, stretch it out to 15 years (incorporates our last big drop 2008/2009) and we're just under the average. Either way, long-term investors probably have an opportunity.

Any TAs want to tell me how valuable or not a basic regression is for long-term views?

Not good because long term pricing of markets reflects long term basic factors. However it can be easier to form a view on those factors. That means you can do regression analysis of the factors to prove a relationship then use your forecast of the factor to drive an equity view. I did some regression analysis at a sharebroking firm in my first job in the very early 90s in NZ using that technique. My findings still have relevancy today. If my suspicions are correct about the macro picture then we are in for real long term trouble.

[SailorRob]

I have been looking at some NZX 50 data with the intention of finding out how much expanding profit margins have been responsible for the incredible run that our little market has had over the last 10 years. It has easily stood up to the mighty S&P500 where most of the other global markets have not. I am talking about total returns with dividends reinvested and imputation credits taken into account.

The NZX 50 has compounded at 12.32% for the 10 years to June 30th. Or a mighty 13.53% if you take imputation credits into account. You will see this in the NZ50G index we are all used to looking at. It matches the SP500 total return for the same period almost exactly. Incidentally the SP500 and the NZ50G are two different indexes, one a sneaky total return and the other a price only. I have adjusted for this.


As we have much data and commentary for the SP500 we know that it has produced this return from expanding multiples to earnings - higher P/E ratios. What we think about less is the earnings as a percentage of revenues, the profit margins. Stateside they have also expanded to levels where the greats such as Buffett thought they could never get to, let alone be sustained. This has of course boosted earnings significantly. So we have high multiples to high earnings, a nasty unwinding if it were to mean revert. Profit margins are double the 20th century average.


I wanted to discover if NZ had also had the same effect - expanding profit margins. What I discovered was that our margins are nowhere near as high as stateside. So then what is going on?


How can we have performed the same as America without having had historically high margins as well as elevated multiples to earnings? And this is where I don't have solid answers as I cannot find the historical data to know where we were at in 2012. If we had washed out multiples on washed out margins then it's easy to see how we did so well. This is what will make you rich, investing into low P/E multiples on washed out profit margins - aka 1982 the beginning of a 20 year bull market with 20% compound returns for 2 decades.


While investigating however I came across some other findings. That a full 20% of out top 50 companies had net profits higher than their annual revenues. This is compared to 1.4% of America's top 2000 companies. Now I guess I understand that some of our companies are developers who hold onto the properties like our retirement sector, so they are using capital to create property and then holding it, so they will have low revenue and post increasing book values as income, but there is more to it than that. It seems to me that a massive portion of the 'earnings' of the NZX 50 companies over the last decade has in fact come from property revaluations - take Auckland airport for example over the last 12 Months, Marsden Maritime Holdings another one.. Could this explain our keeping up with the S&P500 while having a similar P/E ratio but much lower price to sales ratios (lower margins)? Because if not then the only explanation is that in 2012 we were much more washed out or that our companies are better and have increased real earnings far more than our American counterparts. I don't for a second believe this. When I removed the 20% of companies that had higher profit than revenue, the PE ratio of what was left shot up.


How would we fare without this magic earnings stream in future, or with the magic stream running the opposite way? Keen to hear from anyone with more information or thoughts.

[Rawz]

Great post Rob, very interesting!!

[Hoop]

If the Bear market rally starts from most probable target of 4500 then what can be its reasonable or most likely upside target ?

I'm cheating with hindsight ..... alokdhir responded to my post on the same day back on the 10th of May..

Originally Posted by Hoop

Yep and now with hindsight..it is easy to see those warnings turned out to be real.

Right!!!...second wave capitulation in this maturing Bear Market cycle (probably still stage 2 )..when will this latest rout stablise? nobody can predict 100%..
From a chartist perspective the current pattern looks to present a line in the sand somewhere around 4500 (target pricing). This figure has the best odds of a temporary bottoming out and resulting in maybe a Bear Market correction (sucker rally)..that's all just better odds...Need a few rabbits feet, optimistic crystal balls, other lucky charms....."

It's now 67 days later..Let see what's happened since..

A disappointing non sucker flat breather followed by another drop...The Market did see some sort of hope at 4500 but low positive momentum wasn't enough and selling recommenced..Typical bear market cycles are characterised by disappointments. one after another.

OK the market continued to drop some more and bottomed for the time being at a sharp 4200..Now its seems to have hit a strong resistance back at that magical 4500 line..The difference between the 4500"s is last time it was a technical target price of 4500 which was a line in the sand which has no support attached to it..This time 4500 is a part of the S&R (Support & Resistance) setup.

As we all know (or should know) while a Bear Market Cycle is operating any rally always fails at either it's first or second resistance levels. Rarely does it break though the second resistance level and if the Bear is hibernating it can suck investors to "back up the truck".

When do we know the bear could be dead?
Dow theory says a new up trend needs the trend line to be confirmed with at least 5 touches (3 higher highs and 2 higher lows) before it can be called an uptrend....At 5 touches or more it could still be bull trap and an extended sucker rally, although the more touches the lesser the chance of a sucker rally and higher chances of a cyclical reversal.

At the moment, the uptrend is unconfirmed so the index is not in a technical up trend and the index is having a problem busting through a very strong resistance level. The 4500 resistance has a conjunction of EMA200 + S&L line + Primary down trend line)..
Bear Market Investing Strategy uses short/medium term trading and says sell at resistance, buy at support (Rowing Strategy)

This is why most of us (divine beings excluded) can only use predictions. Nobody and no Discipline can predict 100%.

I would assume the NZ50C is still in a Bear Market Cycle (I see no evidence yet of a cycle reversal). In technical theory the index has a high chance of failing to bust through the ~4500 area and if it does break through be careful as there is a higher again chance of failing to bust through 4600.

In saying that the chart below tells us the 4500 strong resistance could be broken which is excellent news. However be careful buying in now...It could be a poor Risk V Reward as the next strong resistance is only +2% away. Beware of positive Media hype.

NZ50C 15072022.jpg