BOOKING A MODEST GAIN IN NEW ZEALAND

Takeaway: As far as 2014 is concerned, the peak rate of improvement in New Zealand’s GIP fundamentals is now in the rearview mirror.

On JAN 30th, we introduced a long bias in the iShares MSCI New Zealand ETF (ENZL) under the guise of:

 

  1. A likely Quad #1 setup for the balance of 1H14: Looking to the subsequently reported data, real GDP growth accelerated to +3.1% YoY in 1Q form +2.2% prior, which was good for the fastest rate of growth in two years. CPI decelerated to +1.5% YoY in 1Q from +1.6% prior; it rebounded back to +1.6% in 2Q.
  2. Commodity reflation exposure: Looking to subsequent market performance, the CRB Commodity Index has appreciated +4.5% since then, inclusive of a +10.4% rip to its JUN 20th YTD high.
  3. Likely NZD/USD appreciation amid a then-outlook for tighter monetary policy: Looking to subsequent monetary policy adjustments, the RBNZ became the first DM economy to tighten monetary policy in the YTD by hiking its benchmark OCR +100bps from an all-time low of 2.5% in consecutive meetings from MAR-JUL.

 

Since then, the ETF has appreciated +7.5%, which has underperformed both the S&P 500 (SPY) – up +9.9% since then – and the MSCI World Index (URTH) – up +7.9% since then. Not terrible, but not our best work either; we obviously prefer to beat beta with our macro ETF recommendations.

 

Moving along, with the index fund recently breaking our immediate term-TRADE line of support (now resistance) amid a deteriorating fundamental outlook, we see no reason to stay involved on the long side at the current juncture.

 

BOOKING A MODEST GAIN IN NEW ZEALAND - 3

 

Looking to the fundamental picture, two developments provide cause for alarm: 

 

  1. Slowing high-frequency data pointing to a dour intermediate-term growth outlook: Looking to the table below, it’s easy to see that the vast majority of New Zealand’s [very detailed] survey, credit and export data are showing clear deterioration from a 3M, 6M and 12M trend perspective. That, coupled w/ the lagged effects of tighter monetary policy should put New Zealand squarely in Quad #4 for the third quarter, which is not particularly exciting for an equity investor in the absence of rate cuts or QE.
  2. RBNZ currency intervention: After the fourth +25bps hike last Thursday, RBNZ governor Graeme Wheeler stated that, “The level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall.” This verbal intervention in FX markets comes after the threat of actual intervention in MAY, amid the following commentary: “The exchange rate is unjustifiably high because it has failed to respond to a slump in dairy prices.” While he may be merely jawboning to a large degree, FX investors clearly do not think that is the case. The NZD has fallen -305bps vs. the USD MoM, the third worst spot return over that duration across the 32 expanded major currencies tracked by Bloomberg. It’s also worth nothing that Wheeler has the full support of Prime Minster John Key in this initiative to weaken the NZD. Needless to say, he does not have ours.

 

BOOKING A MODEST GAIN IN NEW ZEALAND - NEW ZEALAND High Frequency GIP Data Monitor

 

BOOKING A MODEST GAIN IN NEW ZEALAND - NEW ZEALAND

 

All told, we think it pays to book the gain in New Zealand here. If you’re looking for places to put your money, our favorite ideas on the long side of Asia/Oceania remain:

 

  1. “Old China”: CLICK HERE TO ACCESS OUR LATEST RESEARCH NOTE
  2. India: CLICK HERE TO ACCESS OUR LATEST RESEARCH NOTE
  3. Indonesia: CLICK HERE TO ACCESS OUR LATEST RESEARCH NOTE
  4. Taiwan: CLICK HERE TO ACCESS OUR LATEST RESEARCH NOTE

 

Happy hunting,

 

DD

 

Darius Dale

Associate: Macro Team


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more