Wednesday, 9 January 2013

Plenty of bargains, just not on the NZX

At the time of posting this blog, Stockcat has no trouble finding a bargain.

It's been like this for the last few years. That is, a retailer holds a Boxing Day Sale to clear excess Christmas stock. The stock fails to clear, so the sale is extended. The new year comes around and stock is still sitting. Time for a New Year's Sale. There's still excess inventory after the New Year's sale, so the retailer announces an 'Extended' New Year's Sale...

It seems there are bargains to be found well beyond Boxing Day. Perhaps it's a sign that the Global Financial Crisis is far from over. Whatever the reason, bargain hunting on the NZX is not so easy.

The NZX50 Gross Index has recovered to 4,094. To put this in context, the index peaked at 4,320 in 2007 and hit a low of 2,471 in 2009 (down over 40%).

A good chunk of this recovery took place over 2012, with the market rising ~24%. It's been a great year for investors, but Stockcat can't help wondering if the market is looking a bit pricey.

Many commentators attribute the rise to low interest rates. I.e. term deposits and bond rates look dismal, so investors buy high-yielding New Zealand stocks, which pushes up their prices. However, Stockcat can't get past:
  • the New Zealand market is trading at 15.6x earnings. This compares to a 20-year average of 14.0x, a low of ~12.0x and a high of just over 16.0x;
  • outlook still looks fragile, given a backdrop of ballooning government debt in Western economies and the resulting economic uncertainty; and
  • over half the stocks are trading above Stockcat's broker's valuation. This screams over-valuation given that broker valuations are generally too optimistic
US markets and the ASX200 are trading below their 20-year average PE. This, combined with a solid NZD, may mean it's a good time to look overseas.

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