Yovich & Co. Weekly Update - 7 April 2014

Apr 7, 2014 | Commentary

April 7th 2014

20140407

 

This Week’s Themes

  • The NZ market took a breather after reaching another all-time high in the previous week as investors freed up cash ahead of the listing of Genesis Energy.

  • Strong trade data out of Australia helped the market push higher across the Tasman.

  • There is a sector rotation occurring in U.S markets as investors look to take risk off the table after a strong run. Tech stocks slumped on Friday with flows heading towards value stocks.

  • Risk aversion also saw the NZ Dollar fall against the USD.

Investment News

Quarterly Review and Strategy:

The NZ 50 gross index was up 8.5% over the first quarter of the year as global equity markets continue to surge ahead on the back of record low interest rates. Last month the Reserve Bank of New Zealand raised rates for the first time in three years to 2.75%. The statement was hawkish with the RBNZ indicating that they intend increasing interest rates by up to 1.25% this year as they try to combat rising inflation and an Auckland Property bubble. The Government also announced the listing of Genesis Energy which has been priced very attractively as they finish off the SOE listings on a positive note before we head into the election in September.

 

Looking forward, here are a few points made in the recent strategy report produced by Credit Suisse in Australia:

  • Momentum is slowing in global equities due to the following factors:

    • China continues to remain the largest macro concern, if growth was to head below 5%, that would prompt Equities to underperform,

    • Global macro momentum looks to have peaked, although global GDP growth appears set to plateau rather than decelerate,

    • The US Federal Reserve appears slightly more hawkish with QE slowing and rates hikes putting downward pressure on Equities.

  • More positively for equities, Credit Suisse still assess that many sentiment indicators are close to two-year lows, credit spreads have remained well behaved and long-term positioning continues to remain cautious. Moreover, with regard to the recent crisis in Ukraine and the Russian annexation of Crimea, Credit Suisse believes that it is not in Russia’s economic interest to further escalate the crisis.

  • Recently released NZ GDP data for the December 2014 quarter showed a solid economic activity has increased by 0.9% over the quarter and 3.1% for the year, with growth being broad based.

  • Elevated levels of business and consumer confidence in NZ reinforces a profile of underlying growth momentum over the first half of 2014.

  • While the 25bps increase in the OCR to 2.75% at the RBNZ’s March 2014 Statement was consistent with expectations, the RBNZ was perceived to have adopted a slightly more hawkish tone and now appears to have projected a total increase of 125bps in the OCR over the calendar 2014 year.

Overall, we continue to have a positive outlook for the equity market in New Zealand and Australia.

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Jarrod Goodall



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