The Kiwi listed property sector is healthier than its Australian counterpart, the latter suffering from deleveraging and writedowns to asset valuations. The outlook for world sharemarkets remains one of mediocre to poor economic growth across developed markets, offset by above-average growth from the emerging economies.
Australasian Equities - Review
The New Zealand and Australian sharemarkets both benefitted in July from a bounce in global markets, based on a falling oil price and better-than-expected operating results from the US banks, but this was not enough to turn around what was a poor quarter as a whole. The NZX50 Index recorded a loss of 9.90 percent for the quarter ended 23 July, and the S&P/ASX200 Accumulation Index was down 9.70 percent. The Kiwi market was on stronger form after the interest rate cut on 24 July, recording a 1.40 percent gain on the day of the easing. The Australian market was not able to rely on the resources sector to offset weakness in the industrial stocks: the former lost 9.60 percent for the quarter, much the same as the 9.70 percent setback to the industrials. Over the past year, though, resources was very much the place to be, with a 3.20 percent gain compared with the large 27.70 percent fall in the industrials.
Australasian Equities - Outlook
Business and consumer confidence in New Zealand are taking a real hammering, and it's likely that the June quarter will show a second successive quarter of declining growth, the technical definition of a recession. Not helping are the weak property market and signs of weakness in the labour market: the 29,000 drop in jobs in March was larger than anyone had forecast, and could be a foretaste of what's to come. The outlook is not all gloomy for the Kiwi sharemarket, however. Supportive factors include higher government spending in an election year, high dairy and other commodity prices filtering through the economy, and the ending of the drought. The depreciation of the $NZ has also been helpful for exporters, especially the very substantial fall in the cross-rate with the $A. These more positive factors would make it easy for growth to pick up from its current low point, with concomitant positive effects on business and consumer confidence and on share prices.
The outlook for the Australian sharemarket hinges on whether falls to date and improved valuations have taken adequate stock of the impending slowdown in the economy, and the effect on
corporate profits. The market may not have fully taken on board the extent of the likely cyclical slowdown, and that actual economic growth may turn out to be lower than the current consensus (2.90 percent growth this year and 2.80 percent next). Equally, though, price/earnings ratios have fallen to levels that offer reasonable protection against any unexpected deterioration in the 'e' part of the equation. At 12.8 times earnings, the S&P/ASX200 Accumulation Index is currently the lowest since the recessionary conditions of 1991. The story in the resources sector still seems to be one of strong demand running up against limited supply, and ongoing Asian growth means that the commodity cycle still has some further upside.
Read the full Morningstar Economic Update.