A bullish sharemarket contrasts with flagging business confidence

The New Zealand sharemarket’s top index hit a new record this week.

So given the slump in business confidence, is this just another outburst of irrational exuberance? Or do investors have a different take on the state of the economy than the business leaders who respond to confidence surveys?

The sharemarket has had a long bull run and some authorities think it is now overpriced. Yet those who have been predicting a downward correction are lonely prophets.

The market has gained fresh momentum during the recent reporting season, even though several of the leading stocks on the market, notably Fletcher Building, had dismal news for shareholders.

Overall, the market’s sentiment is buoyant. Strong results, and handsome dividends from the electricity companies – which the Key government sensibly partially privatised – were a feature of the recent reporting season.

And tech stocks are providing a degree of excitement for more adventuruous investors: take for example Vista Group International, which expects to maintain sales momentum through the rest of the year as the acquisition of a Latin American cinema analytics reseller helped boost first-half profit 36% to $5.2m.

The Auckland-based cinema software developer lifted first-half revenue 20% to $60.1m and said it expects to maintain that pace of expansion through the rest of calendar 2018.

If it does achieve 20% or more revenue growth for a fifth straight year, taking annual sales to $127m, that’s more than four times Vista’s revenue in 2013, before it went public.

A2 Milk and Synlait have similarly lit up the primary sector. And even a manufacturer like Methven, which has had patchy results in recent years, lifted annual profit 22% as it earned more from international sales, although sales in the domestic market weakened. It expects better domestic growth in 2019.

Of course the local market is heavily influenced by international trends, but it seems to have brushed aside worries over global trade wars. And the Trump effect has played in its favour, with the greenback rising strongly, leaving the NZ dollar to trend downwards. This favours a stock like F&P Healthcare, which earns the bulk of its revenue in North American markets.

Investors can take heart from how London’s “The Economist” views America’s bull market, which sets the pace for the rest of the world. The current one is now thought to be the longest in history.

Yet the warning bells about which investors fret most, such as widening credit spreads and bubbly asset prices, are not sounding loud enough to suggest the next bear market is imminent. Analysts at Goldman Sachs put the probability of a bubble in American shares at less than one in five. This bull may yet have room to run”.

2 thoughts on “A bullish sharemarket contrasts with flagging business confidence

  1. The bull market will continue until two economic indicators align, interest rates rise and the US government realises that it can’t mortgage it future earning any longer. Long terms bonds are showing the strength of perceived interest rate rises, the US government still has its head in the sand. The outcome is going to be ugly, very ugly, when things align.


    1. In my view the current bull market is teetering. Irrational exuberance is now constipational continuance. We all now what the laxitive is, we just don’t know how long it will take to work.


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