Companies still plan to list, despite volatility: AMP Capita   20 Oct 2014

Companies still plan to list, despite volatility: AMP Capital

By Suze Metherell

Oct. 20 (BusinessDesk) - AMP Capital New Zealand, which manages more than $18 billion of assets, expects more companies to list on the local stockmarket before the year's end, undeterred by the resurgence of global volatility as uneven economic growth weighs on central bankers internationally.

The CBOE VIX Index, better known as Wall Street's "fear gauge", peaked at the highest it's been since 2012 last week, as investors worried what impact the end of the US Federal Reserve's bond buying programme will have on the markets and when it might move to lifting interest rates in the world's largest economy from zero. The volatility comes after strong gains for equities in the first half of the financial year, with the NZX 50 Index advancing 8.8 percent since the start of the year.

"Volatility is less driven by Ebola and ISIS and all these major trends which are talked about and is more driven by policy issues," Guy Elliffe, head of NZ equities told media at AMP Capital's quarterly briefing. "We're becoming more and more dependent on the US economy behaving, and leading the world recovery. People are starting to really wonder about how much margin of safety there is, if things start to not behave as anticipated, certainly in terms of the US and Europe, how much policy flexibility there is to get things back on the rails again."

Eliffe saw the heightened volatilty as a "healthy thing" with a sense of risk being introduced back into the market.

"I think it was absolutely complacent before," he said. "Given where valuations are, given a lot of the economic issues talked about I don't think it's a particularly low risk market. It's good the market it pricing in a bit of uncertainty."

The recent volatility wouldn't deter New Zealand businesses considering an intial public offering, Elliffe said.

""I've got five IPO prospects on my desk at the moment, and they're all before the end of the year, so it's a pretty good outlook. Volatility isn't that helpful but I think the more important thing is the valuation, because if the valuation is high then the buyers and sellers aren't probably going to agree to the terms of price," Eliffe said.

That included Orion Healthcare, the health sector software business, and two retirement village operators, Hercules and Oceania Group.

Looking forward, AMP Capital maintained its expectation of annual growth at 3.7 percent in calendar 2014 and 2.9 percent the following year. New Zealand was now past its peak in the growth cycle. The rate of growth would moderate but remain in excess of its non-inflationary potential.

Inflation remains benign in New Zealand due to increased participation in the labour market and strong business investment, leading the Reserve Bank to pause in its tighetening cycle, after lifting the official cash rate a 100 basis points to 3.5 percent between March and September. Commodity prices have fallen, particularly for dairy, the country's largest export, with the GlobalDairyTrade price index dropping some 51 percent from its peak in April.

AMP Capital expects the Reserve Bank to next hike rates in March, but lowered their forecast for the official cash rate to be 4.5 percent at the end of next year, from an earlier forecast of 5.25 percent.

"The forecasts remain dependent largely on the future trajectory of the exchange rate commodity, dairy, prices," Bevan Graham AMP Capital's chief economist said.

(BusinessDesk)

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