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Cause for cautious optimism in South Island

Deloitte South Island Index shows modest fall for year to 31 March 2012

A second successive quarter of gains by South Island listed companies indicates that the economic recovery is gaining momentum, according to the latest Deloitte South Island Index.

The annual review of the quarterly Index report was released at a function in Christchurch today attended by Finance Minister Hon Bill English and about 100 South Island business leaders.

The Deloitte South Island Index, which tracks the performance of 30 listed companies with operations in the South Island, rose by 7.1% during the quarter to 31 March 2012. This followed a slight gain in the previous quarter of 0.5%, although the Index fell by 4.8% in the full year to 31 March 2012.

Paul Munro, a corporate finance partner at Deloitte’s Christchurch office, says the performance of the Deloitte South Island Index during the past 12 months is a reflection of the malaise afflicting the wider economy, brought about by problems associated with the reconstruction effort in Canterbury, the European debt crisis, and the downgrading of New Zealand’s long-term credit rating.

However Mr Munro says there is cause for “cautious optimism” based on the Index’s performance during the past six months, particularly the gain in the quarter to 31 March 2012. 

“Based on the performance of the Deloitte South Island Index during the past six months, it certainly appears to be in a better position than a year ago,” Mr Munro says.

“Another positive that can be drawn is that during the past three years the Deloitte South Island Index has compared favourably to the indices it is benchmarked against in New Zealand and against those of our main trading partners.”

Since 31 March 2009, the Deloitte South Island Index increased by 35.0% in market capitalisation, while the NZX 50 fared marginally better by gaining 35.5%.  In comparison, the ASX All Ords only improved 25.1%, Tokyo’s NIKKEI 225 went up by 24.3% and the SSE Composite Index in Shanghai fell by 4.7%. Only the Dow Jones was notably better, increasing by 73.6%.

The Deloitte South Island Index has grown by $1,271.6 million in market capitalisation since 31 March 2009, and 17 out of the 30 companies on the Index have made gains. 

The standout performer during that period has been the Deloitte South Island Index’s number one ranked company, Ryman Healthcare.  It has experienced an impressive $840 million increase, more than doubling its 31 March 2009 market capitalisation of $705 million.  Other companies which experienced significant gains during the three years to 31 March 2012 were Bathurst Resources (up by $206.6 million since listing in November 2010), Skellerup Holdings (up by $196.3 million) and EBOS Group (up by $155.7 million).

In percentage terms, Chatham Rock Phosphate has been the biggest mover, gaining a massive 776.5% on three years ago and moving eight places on the Index to 22nd. Pacific Edge also moved up eight places, from 24th to 16th, on the back of a 390.2% gain.

Sectors that have performed well include the Property, Biotechnology, Manufacturing & Distribution, and Energy & Mining sectors.

Mr Munro says it is hard to predict how the Deloitte South Island Index will fare over the next year, with uncertainties in global markets likely to continue, although the results from the latest quarter are encouraging.

“New Zealand’s financial markets are in for an interesting period ahead with the partial sale of state-owned electricity companies starting this year, and additional KiwiSaver funds likely to be invested in the market. An improved performance by the retail sector would certainly go some way to boosting the Deloitte South Island Index and the wider economy.”

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