Friday, November 26, 2010

New Zealand Markets - Worth a Look?

Here's an update on the New Zealand markets. First up is a look at the currency, the NZD (also known as the "Kiwi") took a bit of a dive in the past week or so on the back of a few things; first there was the Ireland and wider sovereign worries in the EU, this took some of the risk off - and since the NZD is considered a risk currency i.e. correlated with equities, the NZD has also taken a bit of a fall. Which is unsurprising, as the NZD is more or less at the mercy of what the USD is doing in this pair. The other big thing that happened to knock it down a bit was the Standard and Poor's announcement putting New Zealand's sovereign rating on negative outlook (rated AA).

The question is, will these events be the catalyst that starts the Kiwi into free fall? Make no mistake about it, the NZD is well overpriced against the USD at the moment when you considered the fundamentals. It is well beyond the PPP rate, and is still at the high end of it's historical trading range, and quite a distance from the mean. So it wouldn't be surprising if the NZD did fall further, but of course, the USD could stop that if there were further weakness in the dollar. And of course as one of the carry trade currencies, monetary policy will also play a role.

And what of New Zealand equities? The valuations are still relatively attractive, and it's a good market to generate dividend income, with many high yielders on the NZX. On NZ equities, if you can't gain access to the New Zealand stock market directly there is the recently launched ETF; ENZL which so far is up about 10% since inception, and has clocked up about $55 in net assets. But one of the biggest attractions about the New Zealand market is its low rate of broker research coverage. This means the benefits to be garnered from doing additional research are much higher than e.g. the US, which means opportunities for relatively easy alpha capture. But on the economic outlook front, the prospects are probably similar to the US; the recovery is underway, but growth will almost certainly be sub-trend for a period. Macro aside, it's worth a look.

Econ Grapher Analytics
Yahoo Finance
Global View Forex

Article Source:

No comments:

Post a Comment

What do you think?