New Zealand’s stock market will be supported by growing earnings as the economy recovers and more mergers and acquisitions boosts prices, according to the country’s biggest non-government fund manager.
Company revenue is likely to rise 3 percent this year from 2012 and earnings per share by at least 6 percent, Guy Elliffe, head of New Zealand equities at AMP Capital Investors, told reporters in Wellington today. AMP Capital manages about NZ$1 billion ($840 million) in stocks.
“We’re in an environment where we’ve got increasing earnings,” he said. “Earnings expectations are realistic. Companies will mostly meet the forecasts that investors and analysts expect.”
AMP Capital forecasts the New Zealand economy will grow 2.8 percent this year and the central bank will leave its benchmark interest rate at a record-low 2.5 percent until late 2013. Low borrowing costs, economic growth and investor confidence will support mergers and acquisitions, Elliffe said.
“Because investors are getting confident, corporate buyers and sellers are more confident, too, so they are likely to make acquisitions,” he said.
The benchmark NZX-50 (NZSE50FG) index has gained 11 percent this year, matching the Dow Jones Industrial Average and outpacing the 7.6 percent gain in neighboring Australian stocks.
An increased supply of stocks into the market may have an offsetting effect, Elliffe said. Investors have had to absorb large issues such as News Corp.’s sale of 44 percent of Sky Network Television Ltd. last month, and the government is seeking at least NZ$1.6 billion from the sale of as much as 49 percent of Mighty River Power Ltd.
“The total amount of capital raisings is at a level the New Zealand market hasn’t had to absorb before, so there’s definitely a digestion issue,” Elliffe said. Still, investors will be looking for higher yield offering by stocks as compared to the low interest rates available, he said.
Elliffe declined to comment on the merits of the Mighty River share offer. His team is putting a lot of effort into analyzing the risk of regulatory and structural change to the industry after opposition political parties proposed a radical change if they win the 2014 general election, he said.
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