Yovich & Co. Weekly Update - 1 September 2014

Sep 1, 2014 | Commentary

 Changes in Market 

 

 

This Week’s Themes

  • The New Zealand market reached another all time high last week as reporting season ended with the majority of NZ companies reporting actual results broadly in-line, if not slightly better than expectations. Management outlook statements remain positive with expectations that NZ trading conditions will continue to be supportive for the next 12 months.

  • The Australian market traded sideways and consolidated its position above the 5600 level. The reporting season across the Tasman was also in-line with expectations with a theme of companies looking to return capital to shareholders as balance sheets continue to strengthen post the GFC.

  • August was a strong month for U.S. markets as they reached post GFC highs again during the week. The Dow was up 3.2% and the NASDAQ was up 4.8% for the August month.

  • The New Zealand Dollar fell below 90 cents Aussie for the first time since December 2013 as expectations for further interest rates rises reduce after economic numbers showed lower than predicted inflation figures and growth starting to peak.

Investment News

The Election 2014 – The Current Odds and Possible Winners and Losers

It has been a tough week for the incumbent Government as the fall-out from the “Dirty Politics” book continues to linger on. The revelations made in the book have certainly hurt National in the polls, which has seen a swing to the centre with New Zealand First and the Conservatives benefiting from National’s fall in popularity. The odds are still in favour for National to win a third term, but with polls showing 48.4% support they will need the help of New Zealand First or the Conservatives (If they get 5%) to form a Government.

First NZ Capital highlights the following two possible paths for the political landscape depending on the outcome of the election:

  • A third-term National-led Government's policy line would be a mix of a continuation of the 2011-14 line, potholing politically difficult issues and responding to issues as they arise. There are four strategic extensions that they would pursue: natural resources, teacher “professionalisation”, regulatory reform and extension of the investment approach to social policy, although these would be adjusted for constraints required by support parties. The 2011-14 term was the big one for deregulation and business-friendly policy initiatives.

  • A change of government would mean significant legislative and regulatory change, notably in monetary policy, tax, electricity policy, labour law, immigration, foreign land purchases, education, health, environmental law and climate change. Labour aims to be an "active" government. There are wide areas of agreement with the Greens and New Zealand First. Labour would insist on the prime ministership and the finance ministry.

The sector that remains most at risk to a change of Government is the Electricity Sector. If National wins, there is still a significant upside to the share prices, while if Labour wins, there is a significant downside. A summary of the possible valuations are below:

Energy Sector

 *Meridian’s share price and valuation is based on the fully paid share.

 

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About the author



Jarrod Goodall



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