Sharesight Blog

Will Mighty River’s share price sink or swim?

Posted by Tony Ryburn on April 9, 2013

The NZ Government’s asset sales programme has generated heated debate much of which has been politically driven and ill-informed. But whatever side of the fence you are on, the bottom line is that it is going to happen at least for Mighty River Power which is the first cab off the rank. So as an investor are you going to dip your toe in the water or do you think investing in Mighty River will leave you up the creek without a paddle?

Rather than regurgitating all the factors that might impact on Mighty River’s share price after it floats I thought it might be interesting to look at how previous Government asset sales have performed for investors over the long term. Three that come to mind are Auckland Airport, Contact Energy and Vector. Recording these stocks in Sharesight on their IPO dates reveals some interesting information.

Contact Energy is obviously the most relevant to Mighty River. It listed in May 1999 and since then has produced an electrifying performance with an annualised return (including capital gains and dividends) of just under 15%. However it has suffered a power cut since September 2010 producing a total return over this period of minus 2.6%.

On the other hand Vector, being a lines company rather than a power producer, has seen its share price become tangled in the wires and it is currently below its August 2005 listing price of $3.00. But it has still produced an overall return of 5.6% courtesy of strong regular dividend payments.

Auckland Airport has been the high flyer of the trio with an overall performance of nearly 22% p.a. since it became airborne in July 1998. It is obviously in a different industry and has some unique characteristics, but it does show that previously owned Government assets can perform for investors and are unlikely to sell you down the river.

NZ Shareholders Association AGM

Posted by Scott Ryburn on July 20, 2009

Sharesight is proud to be sponsoring the NZ Shareholders Association AGM this Friday 24 July at the James Cook Hotel in Wellington.

The event will feature the following guest speakers:

Morning Session:

• The Hon Bill English on Creating an Ownership Society. Bill is the Deputy Prime Minister, Minister of Finance and Minister of Infrastructure.
• Tim Brown on Preserving Shareholder Value in Difficult Times. Tim specialises in financial structuring at Infratil. He is also a director of Wellington Airport and NZ Bus.

Afternoon Session:

• Oliver Saint on Using Z Scores to Rate Companies. Oliver is a Chartered Accountant and a former merchant and investment banker. He now works from home as an equities fund manager.
• Rodney Dickens on Recessions and Investing in the Share Market. Rodney is Managing Director and Chief Research Officer of Strategic Risk Analysis Limited and has worked in the share broking industry for 12 years as an economist, strategist and head of research.

For members of the public the cost is $20 each for the morning and afternoon sessions or $50 for the full day including lunch. For Further information please visit The NZSA Website

If you are a Sharesight subscriber we have some limited free spaces available at the morning and afternoon sessions, please email contact@sharesight.co.nz before 4pm Wednesday 22 July if you are interested.

What Does the Economic Future Hold for NZ? (Have the Doomsayers got it Wrong? part 2)

Posted by Tony Ryburn on November 2, 2008

For those of us with an interest in the share market this is an issue of some importance.  We all know that when the markets take a tumble they will rise again, but it would be great to get a handle on how long it will be before we see an upturn and how strong that upturn will be.

Here’s my take on the situation. Caveat: I might change my mind next week!

There is no doubt that there is going to be a major reorganisation of credit globally.  In my last blog I said that the consequences of such a massive change that will embroil the Government (and quasi-government organisations) so extensively in the financial markets, are impossible to predict.  I hold to this, but I also think that while this process is occurring, the productive sector will quickly get back to something approaching normalcy.  In other words the players will soon stop obsessing over the score and concentrate on the game.

Clearly NZ will not escape the impact of the credit crisis (particularly as our household debt is so high) or the recession that is likely to hit most of our trading partners. But there are good reasons to believe we will be less severely affected than most.  Unlike many countries we have not had major bank collapses, our financial system has not been hijacked by out-of-control derivatives trading and the Reserve bank has more latitude than its overseas counterparts to provide further stimulus via interest rate cuts if necessary.

All this suggests to me that the NZ economy is likely to be less severely affected than most (in marked contrast to the situation that prevailed after the 1987 share market crash).  Reduced demand as a result of the looming world-wide recession should keep the lid on oil prices for some time and further aid NZ’s recovery. In addition, renewable energy and sustainable food production are likely to become watch-words and NZ will be in the vanguard in both these vital areas.

So back to our share market. What might all this mean? I believe it will be good news. Our economy will recover more quickly than most and be less severely affected. This will enhance NZ’s reputation as a sound place to invest and re-stimulate investment in our share market from both local, and more importantly, offshore investors.

This is not to say it will not be tough going in NZ for a few years but here’s another bit of good news.  I believe that the full impact of current downturn in the NZ economy is already fully reflected in the NZ share market and then some.

Not convinced? Consider this quote from Michael Hill http://www.stuff.co.nz/sundaystartimes/4745815a6445.html “I’ve given up looking at my own share price because it doesn’t make any sense to real life at all.  I mean if I looked at it I’d think there was something gravely wrong with the company, which there is isn’t.  I mean it’s bloody stupid.”

So how long before an upturn and how strong will it be?  I don’t know but I have certainly persuaded myself not to give up on the NZ share market.

How about you?

A copy of a disclosure statement for Tony Ryburn and Sharesight is available here. This is provided in order to comply with our obligations (if any) under the relevant legislation and is not a representation that either Tony or Sharesight is an investment adviser.
Nothing contained in this blog is intended to be investment advice and neither the writers nor Sharesight accept any liability for reliance on information or opinions contained in this blog.

Have the Doomsayers got it Wrong?

Posted by Tony Ryburn on October 28, 2008

Wouldn’t it be great if we could buy Rod Oram’s argument that the doomsayers have got it wrong about the Government’s bank deposit guarantee scheme? (Sunday Star Times, 26 October). Oram has the powerful forces of wishful thinking on his side but it would be nice if these forces could be armed with rational argument.

Oram says our alarm at the bank guarantee scheme is ‘one of the weirder NZ responses to the global credit crisis.’ He contrasts this with other countries that are ‘rejoicing at the stability similar schemes are bringing to their banking systems’. Maybe I’m on a different planet but I don’t see any sign of rejoicing and no sign of stability either. And even if I’m wrong about this any rejoicing would more likely be because these unnamed other countries’ banks have been falling over like nine pins. This is not the case with our banks which Oram admits are ‘conservative, well-capitalised and good judges of risk’.

Oram suggests the Government bank guarantees are a ‘massive regulatory shift’ that starts to bring NZ back into the ‘global mainstream.’ He implies that this is a good thing. All I can say is that the ‘global mainstream’ is a turbulent, muddy, cesspool that everyone is frantically trying to get out of. Why it is weird for us to be reluctant to dive in to it is beyond me.

I share Oram’s concern about the NZ banks’ offshore borrowing but surely this adds weight to the uncomfortable thought that the doomsayers have got it right: not wrong? To think that a Government bank guarantee will forestall or alleviate any problems that this offshore fund-raising might cause is wishful thinking.

I agree that a challenge (although not necessarily ‘the central challenge’ as Oram suggests) is to ring fence the guarantees so they benefit only the NZ banks and not their Australian parents and shareholders. This is more than a challenge – it’s an impossibility. Any benefit to a wholly owned subsidiary will surely also be a benefit to the parent company.

There are also other challenges that cannot be ignored. When it comes to fund-raising, any action that favours one segment of the market (banks) will have adverse consequences for the rest (managed funds, share market and any others that cannot avail themselves of the guarantee). This is patently unfair and could have serious adverse consequences for organisations whose only crime is they are not one of the banks that Oram says have ‘made a mockery of monetary policy’.

The consequences of such a massive regulatory shift that embroils the Government so extensively in the financial markets are impossible to predict. However history suggests that anomalies, distortions, loopholes, exploitation and ever increasing complexity and cost will rule.

Do you think the doomsayers have got it wrong? I would like nothing more than for someone to convince me they have.

A copy of a disclosure statement for Tony Ryburn and Sharesight is available here. This is provided in order to comply with our obligations (if any) under the relevant legislation and is not a representation that either Tony or Sharesight is an investment adviser.
Nothing contained in this blog is intended to be investment advice and neither the writers nor Sharesight accept any liability for reliance on information or opinions contained in this blog.

Who’s to blame for the financial meltdown?

Posted by Tony Ryburn on October 7, 2008

As an investor in the share markets, I’m keen to discover why such a serious meltdown has occurred in the world’s financial markets and I want to gauge whether the US government’s rescue package will work. Dr Gareth Morgan has had a lot to say recently about the financial meltdown and, as he is well-qualified to assess the situation, I have been reading his views with interest. Maybe it’s just me, but I soon found myself getting some pretty contradictory messages.

Dr Morgan advised that an increasing predilection by the world’s central banks to “save the world” whenever the going gets tough can singularly (my emphasis) be blamed. He then opined that “what‘s behind the current crisis is an orgy of debt – an unrestrained appetite for lending and borrowing, no matter the risk of the transaction”.

This seems like a bank problem to me and it made me wonder whether there might be a dual rather a singular source of blame. But Dr Morgan explained that a message has been sent to the effect that, in the event that an institution over-stepped the mark, it was odds-on that the Central bank would step in. This points the finger at the Central banks with the implication that they have made financial institutions irresponsible by their apparent willingness to bail them out. However in the next breath Dr Morgan suggested that the Central bank might have done no more than aiding and abetting the suicide of the financial sector. This seems to redirect the finger at financial institutions.

The suggestion that financial institutions indulged in an ‘orgy of debt’ because they believed the central bank would bail them out does not sit well with me. I do not for a moment believe that staff in any financial institution anywhere in the world have done shonky deals on the basis that if they go wrong that would be ok because the Central bank would bail them out. That point aside, financial institutions want to succeed not suffer the ignominy of a collapse or a bail out.

The multitude of finance companies that have failed in NZ after indulging in an ‘orgy of debt’ certainly had no expectation of a bailout by our Reserve Bank or the Government. On the other hand, management at the ANZ undoubtedly realise that ANZ is too significant in NZ for the Government to allow it to fail. Despite this there is no suggestion ANZ has indulged in an ‘orgy of debt’.

There is little point in trying to assign blame unless it is part of a process to identify the source of the problem so that it can be fixed. To my mind the primary, if not singular, source of the problem is the lending institutions themselves, not the Central banks. And they have been aided and abetted not by the Central banks as Dr. Morgan suggests, but by the derivatives market.

Derivatives are highly risky instruments with no underlying asset to support them. They started with securitisation (the selling of parcels of loans) and moved on to include credit default swaps (a type of credit risk insurance). These instruments were relatively straight forward initially but variations on them (derivatives) were  developed over time allowing them to be used as a tools for financial speculation. At this point things got absurdly complex and the rot set in.

Transparency went out the window along with trust. The linkages back to the security of the original asset were broken and this created great uncertainty about the value of the assets the financial institutions are holding. In some cases this value is less than the value of the financial institution’s loans which, in the minds of many, is a pretty good definition of insolvency. No one is too sure which financial institutions are insolvent (apart from the ones that have already fallen over!) and this has made financial institutions wary about dealing with each other. Interbank trading is a crucial part of the financial system so it is not surprising that this has triggered a catastrophic chain of events.

So I think to fix the problem we have to start with financial institutions and find ways to monitor and control the derivatives market. This is what the US Treasury is planning to do and they have to be applauded for that. But whether they are going about this task in the best way is another question entirely.

One last thought. Maybe the real culprits are not the financial institutions, or the central banks or the derivatives market. Maybe we need to blame the borrowers. If they had not borrowed excessively in the first place none of this would have happened. Or would it?

We at Sharesight would be interested in your views. What do you think? What are the implications for the Australasian share markets?

A copy of a disclosure statement for Tony Ryburn and Sharesight is available here. This is provided in order to comply with our obligations (if any) under the relevant legislation and is not a representation that either Tony or Sharesight is an investment adviser.
Nothing contained in this blog is intended to be investment advice and neither the writers nor Sharesight accept any liability for reliance on information or opinions contained in this blog.

Know your Portfolio

Posted by Tony Ryburn on April 22, 2008

I was amazed to see the claim in article Portfolio Secrecy in the Sunday Star Times on 20 April that KiwiSaver providers keep their portfolios ‘secret’.

Some claim their portfolios are their intellectual property, but given their performance of late and likelihood that they won’t outperform market averages in the long run the cynic might ask what value they are trying to protect.

It was noted in the article that ‘keeping portfolio information secret made it hard for investors to cry foul over poor stock picking and easier for firms to peddle lame excuses for poor performance.’ I can’t help suspecting that, sadly, this is much closer to the truth than the need to protect ‘intellectual property’.

The thing that irks me most is that investors have the right to know what is being done with their money. Most are very conscious about how much they earn and how they spend their money. But when it comes to savings they are conditioned to accept very sketchy information about what has been done with their savings and infrequent information about what is their rate of return.

KiwiSaver providers should be encouraging investors to take an active interest in their investments and in how their portfolio is performing. It should be made mandatory for them to provide portfolio breakdown and asset allocation information at least monthly as well as online access to the true annualised performance of each investment and the total portfolio that is updated every day.

Why? Well if KiwiSavers were provided with this information many would become much more interested, knowledgeable and committed investors. This would, in time, lead some to the conclusion that they could do better making their own investment decisions and managing their own portfolios. (Which is another reason why providing this information would have to be mandatory!)

Through KiwiSaver we have an ideal opportunity to encourage Kiwis to broaden their investment horizons beyond bank deposits, finance companies and residential property. Hopefully more Kiwis will also see the benefits of investing directly in the share market in their own right. Then we will finally see a much needed improvement in Kiwis’ truly woeful record of direct investment in the share market.

An article in the Dominion post today claims ‘Low-cost KiwiSaver schemes doomed to fail’. It hints strongly that low fees will impact on the provision of a decent service and presumably the ability to provide decent information to investors. I cannot help wondering whether the gripe about low fees is a bit self-serving but be that as it may, the failure to provide comprehensive information to investors is simply not acceptable.

DIY investors in the NZ and Australian share markets can access all the portfolio information they need at little cost through Sharesight and investors should expect no less from their KiwiSaver provider.

Rough week on the sharemarket?

Posted by Nigel Ramsay on January 18, 2008

It’s been a bit of a rough week on the share market. Both in New Zealand and Australia. Currently we’re up to 12 straight days of losses.

But, is it really all doom and gloom? I’ve been keeping a close eye on my portfolio using Sharesight. Sure, there’s some red in there, but it’s not that bad. The reason I’m not terribly depressed is because I get the full picture on my portfolio. That’s capital gains, dividend payouts and also currency movements.

For many of my shares, I’m actually still ahead compared to this time last year. Take for example, my investment in Colonial Motor Company (CMO.NZ).

Including those 12 straight days of losses, I’m actually ahead by 8.5% Sure, if I only look at the capital gains or losses – it’s a sad story. But, to get an accurate picture you have to look at all of the individual components that contribute to your total performance.

So I suggest if you’re feeling a little down about your investments, take a closer look at all the components – Capital Gains, Dividends and Currency movements. I think you’ll find it’s not as bad as your initially thought!

If you don’t already have a Sharesight account, sign up today for a free trial, or check out the video tour to find out more.