(Bloomberg) -- New Zealand equity investors are among the most positive in the region as Kiwis begin to exit from one of the world’s strictest coronavirus lockdowns.
The nation’s stock market is the second-best performer in the Asia-Pacific since global benchmarks plunged to their March lows, according to data compiled by Bloomberg. A fading infection count and moves to unwind virus restrictions have helped the market recover about 27% from its trough, trailing only South Korea’s 33% improvement.
“The market is taking a relatively optimistic view” as the country starts to ease virus rules, said Frances Sweetman, a senior analyst at Milford Asset Management. “There’s still a lot of uncertainty around what the next 12 months could look like” as investors consider how the pandemic has impacted the economy and company results.
Indeed, the benchmark’s path forward remains hazy as New Zealand this week began relaxing restrictions after employing an elimination strategy to halt the virus spread. A lack of earnings clarity and reignited geopolitical tensions has made it hard to assess the outlook for the S&P/NZX 50 Gross Index.
The phased exit from lockdown, which will allow retailers and other businesses to open, comes as job losses mount and the economy enters a slump. New Zealand is expected to suffer a record contraction in the June quarter and the unemployment rate is projected to rise into double digits.
Profit forecasts are yet to reflect the economic blow from the outbreak, according to UBS Group AG (NYSE:UBS). New Zealand’s earnings-per-share estimates for the next 12 months have fallen about 17% since the start of the year, while expectations for larger neighbor Australia have been cut 21% and MSCI World Index targets have been lowered almost 22%, according to data compiled by Bloomberg.
“We believe consensus earnings estimates are stale as around half of the stocks in the NZX 50 have not seen material EPS adjustments over the course of this pandemic,” UBS analysts led by Jeremy Kincaid wrote in a May 1 note.
The upcoming earnings reporting season will provide a clearer picture of the economic impact through the lens of corporate results and guidance, Sweetman said. Escalating U.S.-China turmoil could also weigh on global markets, including New Zealand, she added.
Still, the low interest rates that saw the benchmark index post its biggest gain on record in 2019 will continue to support stocks. New Zealand also benefits from a high concentration of defensive shares, Jarden Securities Ltd. analyst Arie Dekker wrote in a May 5 note. With the exception of retirement housing, sectors hit hardest by the virus like tourism and retail have small weightings on the index.
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