Shareholder confidence in New Zealand’s primary sector listed companies has fallen to an eight-year low and is down 22% on the 10 months since January.
The S&P/NZX Primary Sector Index has sunk to 10,000, a level not seen since January 2016, having begun the year just under 13,000.
The index is a composite of all 18 NZ-listed companies engaged in the primary industries of agriculture, horticulture, viticulture, aquaculture and forestry.
It was launched in 2009 by local markets operator NZX and for long periods since then it outperformed what is now called the S&P/NZX All Index Gross.
In other words, the gains of the share prices of primary sector companies were above those of the full share market, most notably in the period 2016 to 2021.
But that chart comparison has now reversed. While the primary sector index has fallen 22% in the past year the S&P/NZX All Index has fallen only 9%.
The peak of the S&P/NZX Primary Sector Index was in late 2018 and in the five years since the index number has halved, which translates into negative 10% return on an annualised basis.
In the three years 2015 to 2017 primary sector companies enjoyed a purple period of growth and their share prices rose by 44%, 7% and 55% collectively, consecutively.
Much of the excitement during those years was centred on a2 Milk (ATM), which soared to $20 a share, and this led to the highest market capitalisation on the whole NZX main board.
Likewise, a2 remains a big component of this year’s primary index fall, its share price being down 45% since the start of the year to $4.20 currently.
Market capitalisation for a2 at $3 billion is still influential as most of the other companies within the index are much smaller.
Forsyth Barr senior equities analyst Matt Montgomerie said a2 Milk’s share price performance over 2023 has fallen from a relatively optimistic period in January when the company appeared to be regaining its momentum after covid-19 problems.
“The slowing Chinese birth rate and loss of the daigou trading channel have hit hard and other marketing channels are more intensive, cutting into gross margins,” he said.
For the S&P/NZX Primary Sector Index, a2 is the dog and all other 17 companies the tail.
Only Fonterra Shareholders Fund (FSF, market cap $330 million) is positive over the past year, during which the co-operative achieved its share capital restructure and produced a record profit.
The a2 handmaiden, Synlait Milk (SML, market cap $292m), was dragged down 57%, being the worst performer.
The horticultural companies, Scales (SCL), Seeka (SEK), Delegat (DGL) and T&G Global (TGG) are down 20-30% because of weather woes.
Comvita (CVT) fared better, down 4%, as has Sanford Fisheries, down 5%.
Montgomerie pointed out that the index contains a grab-bag of companies that fall short of reflecting the importance of the primary sector to NZ’s economy.
“On any company quality metric over a sustained period not many would come to the top of the list in the share market.”