Prices of New Zealand assets namely houses and the share market have performed strongly over the last 12 months (ending October) with NZ share market up 18.8% and Auckland house prices up 9.2%.  This has been in the face of generally subdued economic and more recently earnings data in New Zealand and overseas.  This should provide some warning bells and raise the question – is it time for investors to cash in some profits?  

The major driver of the moves has been due to two positive factors:

1)  demand exceeding supply and

2)  low interest rates. 

Low interest rates make putting money on deposit less attractive relative to investing and reduce the interest costs of buying a house.  

Demand for shares has been boosted by the success of KiwiSaver and a large amount of bond issues maturing or about to mature.  Rising demand and therefore prices has seen some supply come to the share market with two large private investors the Todd and the Fisher Family selling shares in SKY TV and Highbrook Business Park (part of Goodman Property Trust) respectively.  

One area new supply is possible is the listed property sector where share prices are currently trading above the net tangible asset values assessed by independent valuers.  The Fonterra issue of shares is providing an opportunity for investors to put their money to work, however, the $500m issue looks likely to be swamped by demand.  

For now it looks like demand and low interest rates should continue to provide support for New Zealand share and property markets.  However, the global and New Zealand economies remain fragile due to spending cuts in the US and Europe needed to control government debt levels.  With investor confidence also fragile the demand for riskier assets (such as shares and property) could easily subside.  Accordingly, some caution is warranted especially where asset values have risen considerably.

Jonathan Windust

Portfolio Manager