We expect the RBNZ to have dropped the OCR by another 50 basis points by the time this is read.

This will take it to 3.00%, and still the terminal OCR is expected in the 2 to 2.5% range. These interest rate falls are having a lowering effect on mortgage rates, and there is still room for further cuts.

The real concern now is how high unemployment rises. Also, there are de-leveraging tendencies as savings start to increase, and this does not bode well for retailers in the medium term.

Australasian equity markets are now at levels of five years ago, having followed world-wide declines.

Everyone is looking for a base, however different industrial sectors will bottom at differing points in the economic cycle. We believe Telecom bottomed at $2.20, and at a price under $2.40 shows a yield over 10%pa.

One stock which has not responded to lower interest rates yet is Goodman Property Trust (GMT). It still has the “property factor” overhanging it, so its response is likely to be later.

However GMT offers an attractive yield, but with the risk a property devaluation would reduce the NAV and affect the unit price, if it has not already been factored into the price.

This is a non-cash item and on its own would not affect the Trust’s ability to pay a dividend. In the fixed interest market, Contact Energy Bonds are taking centre-stage. They are a “plain vanilla” issue, fixed rate, fixed maturity, paying quarterly interest, senior bonds with a BBB credit rating from S&P. They will raise $550m and there was no scaling, the company taking all which is bid firm.

This will be a popular issue amongst investors keen on lending directly to one of NZ’s major public listed companies operating in the energy infrastructure sector which has long been regarded as a defensive part of the market.

The company is well diversified across its generation portfolio and operates transmission, wind, geothermal and gas facilities.

Investment objectives are paramount at any time, and more so now. For anyone wanting to work through an investment risk profile, objectives and appropriate portfolio diversification, please contact the writer.

A full Broker and Advisor disclosure statement is available from our office, on request & free of charge.

Source: Richard Boulton, Managing Director, Advisor, NZX Broker, Hamilton Hindin Greene Ltd
Telephone: (03) 379 8420
Toll Free: 0800 10 40 50

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