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  1. #14221
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    Quote Originally Posted by LaserEyeKiwi View Post
    Most equities around the world have P/E & Dividend yield ratios that change with adjustments in central bank interest rates, but curiously New Zealand equities don't seem to have had their earnings multiples repriced higher to what would be expected for such a large fall in central bank interest rates (and the reduced retail bank interest rates that follows).

    With Interest rates below 1%, solid dividend paying companies should have yields around 3% (giving a 2% risk premium above the "risk free" bank deposit rate). The fact that many solid New Zealand companies are paying between 5%-9% forward dividend yields is mind blowing - they are absolutely screaming bargains.
    In my experience, notwithstanding the PE range Winner has suggested above, I have noted Heartland to have a PE range of 11-17.5, mid point 14.25 when the risk free rate was significantly higher than currently prevailing. I think you have an excellent point which isn't lost on me. With interest rates where they are now you could easily make the case that this range should be 150-200 basis points higher.

    I'm very comfortable with a PE in the 15-16 range and earnings in the same numerical range for FY22 and seeing as the market is always a forward looking beast somewhere in the low $2's this time next year seems more than plausible to me and I have always been happy to sail my own race....speaking of which it must be time for the America's cup...
    Solomon actually left us with some investment advice about proper diversification in Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” Proverbs 27:12 "The prudent see danger and take refuge, but the simple keep going and pay the penalty".

  2. #14222
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    Quote Originally Posted by LaserEyeKiwi View Post
    Most equities around the world have P/E & Dividend yield ratios that change with adjustments in central bank interest rates, but curiously New Zealand equities don't seem to have had their earnings multiples repriced higher to what would be expected for such a large fall in central bank interest rates (and the reduced retail bank interest rates that follows).

    With Interest rates below 1%, solid dividend paying companies should have yields around 3% (giving a 2% risk premium above the "risk free" bank deposit rate). The fact that many solid New Zealand companies are paying between 5%-9% forward dividend yields is mind blowing - they are absolutely screaming bargains.
    May NZ equitymarket is more ‘sensible’ and not followed the rest of the world to the same extent (even it is trading on a much higher multiple than a few years ago)

    Govt bonds might get you next to nothing these days. But have you though that "justifying" extreme valuations in other assets is identical to "justifying" zero long-term returns.

    That’s what’ll happen here ...one day we will have to sell today’s ‘screaming bargains’ to lock in gains and preserve ones capital......holding for 5 to 10 years likely to end in tears
    “In a roaring bull market, knowledge is superfluous and experience is a handicap.” - Benjamin Graham

  3. #14223
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    I agree...just look at Airbnb ....it priced 95 b us dollar...holly molly....

  4. #14224
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    Quote Originally Posted by winner69 View Post
    May NZ equitymarket is more ‘sensible’ and not followed the rest of the world to the same extent (even it is trading on a much higher multiple than a few years ago)

    Govt bonds might get you next to nothing these days. But have you thought that "justifying" extreme valuations in other assets is identical to "justifying" zero long-term returns.

    That’s what’ll happen here ...one day we will have to sell today’s ‘screaming bargains’ to lock in gains and preserve ones capital......holding for 5 to 10 years likely to end in tears
    Exactly right Winner. Send your grand kid out to the end of the driveway to sell 50c glasses of lemonade. Float the venture on the sharemarket and justify the yield as a bargain by comparing it with long term government interest rates of 0.000000000001%. That should justify a PE ratio of 65,000,000,000. Forget the pension. Having a kid selling lemonade at the end of your driveway could be worth hundreds of millions of dollars under this current low interest rate paradigm.

    SNOOPY
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  5. #14225
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    Quote Originally Posted by winner69 View Post
    May NZ equitymarket is more ‘sensible’ and not followed the rest of the world to the same extent (even it is trading on a much higher multiple than a few years ago)

    Govt bonds might get you next to nothing these days. But have you though that "justifying" extreme valuations in other assets is identical to "justifying" zero long-term returns.

    That’s what’ll happen here ...one day we will have to sell today’s ‘screaming bargains’ to lock in gains and preserve ones capital......holding for 5 to 10 years likely to end in tears
    Can you elaborate?

    I'm not in anyway trying to justify any sort of "extreme valuations" - I'm using the simple equations used by value investors and discounted cashflow analysts for decades to price equities & corporate bonds, which along with other fundamental analysis uses a basis point spread above the risk free rate of return offered by government bonds to assign an expected valuation. It works the opposite way as well, when interest rates rise at some point in the future, the P/E ratios on equities should fall (& dividend yields increase).

    All else being equal - eg if there are no other underlying changes to company fundamentals - then a fall in the risk free return from government bonds should move a company's dividend yield down by a similar amount (by the equity value being priced higher).
    Last edited by LaserEyeKiwi; 19-12-2020 at 08:33 AM.

  6. #14226
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    Quote Originally Posted by LaserEyeKiwi View Post
    Can you elaborate?

    I'm not in anyway trying to justify any sort of "extreme valuations" - I'm using the simple equations used by value investors and discounted cashflow analysts for decades to price equities & corporate bonds, which along with other fundamental analysis uses a basis point spread above the risk free rate of return offered by government bonds to assign an expected valuation. It works the opposite way as well, when interest rates rise at some point in the future, the P/E ratios on equities should fall (& dividend yields increase).

    All else being equal - eg if there are no other underlying changes to company fundamentals - then a fall in the risk free return from government bonds should move a company's dividend yield down by a similar amount (by the equity value being priced higher).
    I wouldn't be concerned mate. What you are saying is perfectly logical. HGH should provide a return well above the NZX50 in 2021. Growth stocks on a current year PE of 11.25 are a very rare thing in our market.
    Solomon actually left us with some investment advice about proper diversification in Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” Proverbs 27:12 "The prudent see danger and take refuge, but the simple keep going and pay the penalty".

  7. #14227
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    Quote Originally Posted by LaserEyeKiwi View Post
    Most equities around the world have P/E & Dividend yield ratios that change with adjustments in central bank interest rates, but curiously New Zealand equities don't seem to have had their earnings multiples repriced higher to what would be expected for such a large fall in central bank interest rates (and the reduced retail bank interest rates that follows).

    With Interest rates below 1%, solid dividend paying companies should have yields around 3% (giving a 2% risk premium above the "risk free" bank deposit rate). The fact that many solid New Zealand companies are paying between 5%-9% forward dividend yields is mind blowing - they are absolutely screaming bargains.
    I wonder if one of the reasons is the comparative size of the sharemarkets. In relation to its population, NZ has a small pension and managed fund sector and a very small share market capitalisation (and many kiwi funds invest more in overseas equities anyway.) The value of investor residential housing exceeds the share market capitalisation in NZ. So a greater % of the investment in NZ, stimulated by the drop in interest rates, probably ends up in residential housing.

    So perhaps the yield on investor residential housing would be an equally apt figure to use for NZ when making a comparison with yields from overseas sharemarkets, affected by increased investor demands a result of lower interest rates.

    There are a small number of listings on the NZ market and some business sectors are not well represented. Maybe that could also explain some of the divergence from what has happened on overseas share markets and it may also explain a greater inelasticity in yield on the local market.

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    Give it two years with economic conditions like 2nd half of 2020 and interest rates will be rising again and quick. Highly doubt NZ will have decade long, rock bottum rates like Japan or europe. These rates in NZ are a blip rather than the new norm IMO. Very hard to keep a lid on immigration here and when the floodgates are open thats big demand pressure. Japand and europe have long term, secular trends of low birth rate, aging populations and much lower migration than here.

    Add to that NZ companies have always paid higher div yields than those in US.

  9. #14229
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    Quote Originally Posted by Mr Slothbear View Post
    ...Very hard to keep a lid on immigration here and when the floodgates are open thats big demand pressure. Japand and europe have long term, secular trends of low birth rate, aging populations and much lower migration than here.

    Add to that NZ companies have always paid higher div yields than those in US.
    Certainly a greater proportion of earnings tend to be paid out as dividends instead of being reinvested in the business, for various reasons.

    Why is it hard to control immigration? NZ has control over its borders and its immigration policy as ar as I am aware. I think NZ governments have relied too much on immigration instead of introducing fundamental changes to the investment and tax environment to encourage investment in business which could help increase productivity from existing employees.

    Continued immigration does help increase the price of a our supply-constrained residential housing which in turn makes an influential part of the electorate happy! I imagine Ardern knows this and realises that it will help keep her in power.

  10. #14230
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    Global Dairy Trade prices up again last night ....that’s good

    GDT prices been trending up strongly since early November .....and the HGH shareprice has followed (as it generally does)

    Weird eh ...but a ‘correlation’ that’s been in place for some time .....but a good sign for HGH shareprice next month or so.
    Last edited by winner69; 06-01-2021 at 07:51 AM.
    “In a roaring bull market, knowledge is superfluous and experience is a handicap.” - Benjamin Graham

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    Dairy prices up 3.9% in global auction https://a.msn.com/r/2/BB1cve9K?m=en-nz&a=0

  12. #14232
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    Quote Originally Posted by winner69 View Post
    Global Dairy Trade prices up again last night ....that’s good

    GDT prices been trending up strongly since early November .....and the HGH shareprice has followed (as it generally does)

    Weird eh ...but a ‘correlation’ that’s been in place for some time .....but a good sign for HGH shareprice next month or so.
    Yes. Additionally, all those MEL holders, many probably quite conservative dividend seekers, will be looking for somewhere to invest their gains.

  13. #14233
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    Wonder if Jeff and/or his advisors did some thinking over the break and came up with a brilliant plan to extract full value for the motor division.
    “In a roaring bull market, knowledge is superfluous and experience is a handicap.” - Benjamin Graham

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    Master winner...if interest rate going up...will it benefits big banks?

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    My answer is that it does. When interest rates decline, NIM goes down, because lending rates decline quicker than deposit rates. The reverse is true when rates rise.

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    Someone just got 1.4 million worth. I wouldn't have minded that

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    Thanks. Cnbc analyst said.... interest rate will slowly raise from now on

  18. #14238
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    Quote Originally Posted by KJMLimited View Post
    My answer is that it does. When interest rates decline, NIM goes down, because lending rates decline quicker than deposit rates. The reverse is true when rates rise.
    I had the impression that the problem was that certain deposit rates can't easily fall below zero. As rates fall more account types hit this barrier. This squeezes the deposit margin achieved. Its a lot less of an issue for finance companies because most of their NIM is made on the lending side and zero interest deposits are not a big source of funding for their loans.

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    Quote Originally Posted by Scrunch View Post
    I had the impression that the problem was that certain deposit rates can't easily fall below zero. As rates fall more account types hit this barrier. This squeezes the deposit margin achieved. Its a lot less of an issue for finance companies because most of their NIM is made on the lending side and zero interest deposits are not a big source of funding for their loans.
    You're right on this one for HGH, but I think it trades in line with AU banks, and their shares prices move up and down in line with their NIMs. Not a perfect relationship though. However I have seen short-term rates move up this week at two banks - 0.25 bps in one case, with the same bank offering a record low mortgage rate. Mayne just a short-term attempt to capture market share.

  20. #14240
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    Bull break of the 170 resistance. US financials have been performing very strongly in the last week so suspect this is a catalyst. Next strong resistance level is around 190.

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