I am constantly searching the globe for out of favor investment themes or markets that offer fantastic fundamental value and have limited correlation with major market stock indices of the developed world.
The New Zealand stock market has been overlooked by many investors, even those close by in Australia. Yet the NZSE has been among the best performing stock markets so far this year, including emerging stock markets. The compelling investment case for New Zealand equities is:
- Their low correlation with US stock markets.
- Low fundamental valuation. With a dividend yield of about 5% and a P/Book ratio of 1.5x valuations are significantly less than developed market counterparts.
- Limited exposure to financials, all of New Zealand's banks are subsidiaries of Australian banks.
- A strong currency and stable government with no debt problems.
The chart below is that of the NZSE Overall Index. As you will note, it is still way off the highs of 2008 and yet it is currently trading at a multi-month high seemingly unphased by the weakness in developed and emerging markets over the last few weeks, this suggests that there is very limited downside in New Zealand equities.
There are not many ways to gain exposure to New Zealand equities by retail investors outside NZ. There is only one ETF that trades on the Nasdaq; (ENZL). The big heavy weight of the NZ stock market, Telecom NZ, has an ADR (NZT). Telecom NZ has an attractive valuation with a dividend yield of just over 6%.
Over the long term I think investors will be well rewarded by an investment in New Zealand equities.
Disclosure: I am long ENZL.