A Guide to Investing in New Zealand

Friday, Nov 20 2015 by
8
A Guide to Investing in New Zealand

In his excellent book, One Up One Wall Street, Peter Lynch explains that he loves 'dull' companies in 'no-growth' industries. “I get even more excited when a company with a boring name also does something boring”. Could the same perhaps be said for countries? If I asked you to name a dynamic growth economy, you'd probably mention one of the BRICs, like China or India. New Zealand would probably be the last country to spring to mind. One of our Directors at Stockopedia is a Kiwi, but despite the risk of getting fired I think it is safe to say that New Zealand meets Lynch's criteria - it’s a pretty boring place. It may have a great rugby team, but it doesn't have the growth story of an emerging market and it isn't particularly well known as a hub for glamorous industries, like Silicon Valley is for tech. So would Lynch think there is a strong case for investing there? Let's take a look…

International Value Investing

The reason Lynch likes boring companies is that they may to be overlooked by most investors and could therefore be cheap or undervalued. Cheaper stocks often beat expensive stocks. Research by Meb Faber also suggests that cheaper countries outperform more expensive ones. Faber recently calculated a composite valuation rank for 43 nations (see here). For each country he calculated the:

  • CAPE ratio. The cyclically adjusted P/E ratio, is defined as price divided by the average of ten years of earnings. It therefore seeks to smooth out the economic cycle and allow for better comparisons over time.
  • CAPD: Cyclically-adjusted price/dividend ratio.
  • CAPB: Cyclically-adjusted price/book ratio.
  • CAPCF: Cyclically-adjusted price/cash flow ratio.

'Blue chip' economies like the US, Germany and Japan were amongst the more expensive countries. Emerging markets like China and South Africa were also more expensive. Cheaper stocks may be riskier, with a higher chance of bankruptcy. So it is interesting to see that Greece and Portugal were amongst the cheapest countries. We can see from the chart below, extracted from Faber's excellent book, Global Value, that nations with lower (ie. cheaper) CAPE ratios beat more expensive countries between 1980 and 2013.

564ee52f89133Guide_to_Investing_in_New_Z

So where does New Zealand fit into all this? Figures from Meb Faber's Idea Farm suggested that in early 2015 New Zealand was the 14th cheapest country in the world - out of…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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5 Comments on this Article show/hide all

cathey 17th May '16 1 of 5
1

I'm not sure why you have BHP listed here. Surely you are not implying BHP is an NZ company?
Also no mention of the imputation credits on dividends not claimable by non residents so result is double tax on dividend income. eg
gross dividend 100
less imp cr 28
72.00
less wht 15% 10.80
net cash divi 61.20
So effective 38.8% tax

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Alex Naamani 17th May '16 2 of 5

Hi Cathey,

Many thanks for this and for your insights into imputation credits. The NZ dividend system would probably be an article in itself. Explaining it thoroughly would probably be beyond the scope of one article, so we will be producing content along these lines as we go forward. We will also be introducing data on imputation credits on site.

Apologies re BHP. The above article was tagged with BHP in error. It has now been removed.

I hope this helps? Do please let me know if not.

Best,

Alex

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Richard Goodwin 17th May '16 3 of 5

It sounds good to me, I really go for boring. The most boring company I've found so far in the UK is Leeds (LON:LDSG) which consequently has kept a high stock rank for ages. The Company Secretary was amazed when I said that I had even looked up double folding machines on YouTube!

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Richard Goodwin 17th May '16 4 of 5
1

Can a stock rank be produced for countries?

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Alex Naamani 2nd Jun '16 5 of 5

Hi Richard,

This isn't something we provide at the moment. Further down the line perhaps, but in the meantime you might find Meb Faber's research very interesting. He has calculated value composite ranks for various countries. See here: http://bit.ly/1TXOQHy

At the cheaper end you'll find 'scary' countries that are exposed to some sort of macroeconomic risk (eg. Greece) or political risk (eg. Russia). 'Blue chip' economies (eg. the US and Germany) were typically more expensive.

I hope this helps?

Best,

Alex

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About Alex Naamani

Alex Naamani

I work as a Financial Analyst at Stockopedia.  As well as contributing to regular site editorial, ebooks and guides - my research contributes to our growing financial databases and product development.  The goal is always to help private investors manage their own portfolios and beat the market in the process.  I have passed the CFA level 1 exam. more »

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