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The Brave Were Rewarded This Year On The Sharemarket

Fuseworks Media
Fuseworks Media

By Pam Graham of NZPA

Wellington, Dec 23 NZPA - It was carnage out there at times on the New Zealand sharemarket this year and yet the price market operator NZX trades at on its own exchange doubled.

2009 was that kind of year -- a wild ride that both crushed and rewarded investors. Prices were volatile and liquidity lacking in small stocks. Some business leaders stood up and others either handed on the baton or stumbled.

The local sharemarket is criticised for being a poor source of capital but about $3.17 billion of equity and $3.02 million of debt was raised. The methods, prices and the fees for organisers all attracted comment but the market did its job.

In past years a rights issue, or sale of new shares to existing shareholders, might have offered investors the chance to buy one new share for several held. This year Nuplex asked investors to buy seven for every one held. A stock that started the year at $4.81 sold new shares at 23c each.

Pyne Gould Corp asked shareholders to buy six shares for every one held at 60 percent off. A bargain if you had the money but many did not.

Companies raised more than their market value, an event NZX chief executive Mark Weldon had never seen before.

"It was almost like a second IPO," he said.

Blue chip company Fisher & Paykel Appliances lost credibility with investors and now has Chinese company Haier as a near 20 percent shareholder. Who'd have thought it?

PGG Wrightson also has a new Chinese shareholder, Agria, and we wait to see what influence Craig Norgate has in future, if any.

South Canterbury Finance is being supported by wealthy owner Allan Hubbard and a succession plan is awaited.

The Australian banks struggled to put on a happy face when they ended up on the wrong side of an argument about $2 billion of disputed tax and appeals are awaited.

Receivers were busy this year and needed gumboots when Cedenco and Crafar Farms failed.

Investors wept as they told inquiries and courts of their losses from finance company and property investments recommended by financial advisers but Consumer New Zealand dealt to the argument that they should have known. The product is faulty and needs fixing.

"Forty-five finance companies have failed in New Zealand and we were number 26," Hanover Group founder Mark Hotchin said on TV3 this year. It didn't make investors feel better.

Corporate excess continued, including extravagant birthday bashes for Hanover founders, but so too did court appearances and director bannings.

In the UK, bankers were furious at plans to one-off 50 percent supertax on bonus payouts. The politicians reckon there might be some votes in it.

Back in New Zealand, a person who always stood up -- Max Gunn, the retired accountant who berated the board of Carter Holt Harvey (CCH) for years "on behalf of widows" died in 2009.

Documents filed in Europe without fanfare revealed CCH has been transformed and was doing well under the ownership of New Zealand billionaire Graeme Hart.

Many members of the business community paid tribute to Morrison & Co founder Lloyd Morrison during his ongoing treatment for cancer.

Jon Bongard left Fisher & Paykel Appliances, also after a cancer diagnosis, and Brent Impey is leaving MediaWorks.

Every rule affecting business seemed to be under review.

Historic changes were occurring in telecommunications and infrastructure and the debate about the role of government in them went on, and on.

Morrison & Co was positioned to enter public private partnerships with the Government next year, likely first in the building of new prisons.

The sharemarket was at the centre of all this, reflecting the changing fortunes. The NZX50 index had risen 35 percent from its low this year by mid-December.

This time last year the sharemarket was down 37 percent from its peak, investors had completely given up on investing in equities and cash levels were at record highs, First NZ Capital wrote in a report.

"Some time during 2009 this bear market will end and a sustained recovery in equity prices will commence," First NZ Capital correctly predicted then.

Aspiring Asset Management newsletters plot the 2009 sharemarket year.

In January, market strength was almost entirely due to Telecom. The market tanked in February -- Fisher & Paykel Appliances fell 61 percent, Nuplex 58 percent, Cavalier 30 percent, GPG 28 percent, and Rakon 27 percent.

It turned in March and by August there were five months of gains, with July a stellar month. October was mixed. In November, Kathmandu was floated but by December two signalled floats, Synlait and DNZ Property, were pulled and BioVittoria was struggling.

Stock markets are said to rise six months ahead of economies. This year it took guts to decide when that would be and those who had guts were rewarded.

Stephen Walker at Goldman Sachs JBWere said that until around June a lot of people were still sceptical of the recovery.

"I think the local market has kept its feet on the ground and hasn't panicked too much and that has been quite mature and quite good," Mr Weldon said.

A comment that turned up a lot was that it paid to be pragmatic.

"The past 15 months has taught us many lessons, but foremost in our mind is that the `buy and hold' strategy favoured and recommended by many is not particularly effective in the current environment," Aspiring said in February.

Mr Weldon said the NZX did a fantastic job in keeping the health of the New Zealand corporate sector as strong as possible in a global recession.

There were no stock broker failures, no loss of client funds and there was good transparency.

"We should give a tick," he said.

So what of 2010?

"I think 2010 could be an absolute banner year if the Government is of a mind to make some meaningful structural change," Mr Weldon said with respect to proposed changes to the regulatory framework for financial markets.

He noted growth in the listed corporate bond market as a positive.

Auckland City Council and NZ Post listed bonds -- both firsts. A genuine secondary market is developing for bonds, which was"an incredibly valuable thing" for investors, Mr Weldon said.

First NZ Capital said the easy gains may have already passed for equities but conditions would remain generally positive next year.

Armageddon has been averted but the next generation was shackled with the debt burden taken on by governments around the world, Aspiring said."We do not believe that the market can enter a new true bull phase until corporate profitability begins to rise."

Business commentator Brian Gaynor said the New Zealand market would not be up to the task of helping New Zealand close the gap with Australia until it was strengthened.

"We've got the best opportunity we've ever had to get regulation right next year," Mr Weldon said.

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