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New Zealand equities power down

23 July 2015
Equities, New, Zealand
New Zealand and global shares had their first negative quarter in three years in the June quarter. In contrast, Australian and emerging market shares have had three negative quarters over the same period. 

The relentless march upwards had been getting long in the tooth, especially in New Zealand’s case where earnings lost momentum earlier in the year. The latest profit outlook from the ANZ survey of business opinion does not point to a rapid recovery in earnings growth, though this may be overrepresented by the gloomy dairy industry. Equity analysts are more optimistic, expecting 6-8% earnings per share growth over the next 12 months.

New Zealand profits turning

Source: Bloomberg, AMP Capital

The softening in reported earnings coincides with nominal GDP growth falling to 2.1% in the year to March 2015, from 8.6% in the year to March 2014. If the New Zealand stock market was a true representation of the New Zealand economy, then earnings growth would mirror nominal GDP growth (if profit margins were unchanged).

New Zealand profits following nominal GDP growth

Source: Bloomberg, AMP Capital

We expect nominal GDP growth to show modest recovery over the next year as credit growth is tracking around 5-6%, real GDP growth is expected to remain reasonably solid and producer price inflation should pick up. Earnings should also move up from current levels but may not meet analysts’ expectations.

If the New Zealand stock market was a true representation of the New Zealand economy, then earnings growth would mirror nominal GDP growth (if profit margins were unchanged).
This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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