MARKET CLOSE: NZX50 at record as Meridian, Contact gain

New Zealand shares rose to a record as investors bought dividend-paying stocks such as Meridian Energy and Contact Energy on the expectation the Reserve Bank will cut the official cash rate tomorrow. A2 Milk Co extended its rebound.

The S&P/NZX 50 Index advanced 50.83 points, or 0.9%, to 5927.74. Within the index, 30 stocks rose, 11 fell and nine were unchanged. Turnover was $113 million.

Traders are pricing in a 108% chance the central bank will cut New Zealand's interest rates tomorrow, meaning a reduction of 25 basis points is fully priced in and there's an outside chance the Reserve Bank will lower the rate by 50 basis points. That boosted sentiment for kiwi equities, which are held for their reliable dividend, as investors look for income paying investments.

Meridian climbed 3.2% to $2.23. Contact rose 2.8% to $5.14. DNZ Property Fund rose 1.4% to $2.15. Precinct Properties NZ increased 0.2% to $1.14.

"Investors are hopping in ahead of the Reserve Bank announcement tomorrow, expectations are for an interest rate cut," said Grant Williamson, director at Hamilton Hindin Greene. "Investors think that is going to be good for the share market and are out in force buying."

Companies with currency exposure gained on the expectation a rate cut will drive the kiwi dollar lower. Fisher & Paykel Healthcare, the breathing mask manufacturer and exporter, advanced 1.6% to $7.54. Fletcher Building, the construction and building supplies firm with operations in Australia, gained 0.6% to $8.16.

"If our interest rates do drop, you're probably likely to see a fall in the New Zealand dollar," Williamson said.

A2, the milk marketing company, climbed 3.9% to 81c. Earlier this week the company said a bid by cornerstone shareholder Freedom Foods Group and US food and beverage firm Dean Foods wasn't compelling enough to get a board recommendation. It also canned capital raising plans for the moment.

"It initially got sold off because the company wasn't interested in that approach they'd had from Freedom Foods," Mr Williamson said. "That seems to have turned around now. A2 did say no capital raise – that will make investors happy – and they have had other approaches from other parties."

Summerset Group led the benchmark index higher up 4% to a record $4.14. The retirement village operator announced it will build a sixth village in Auckland, having acquired a 127-year lease in St John's, adding to news earlier in the week that it had bought land in Warkworth to further expand a village. Good sentiment flowed through to the rest of the sector, with rival Metlifecare advancing 2.7% to $4.90 and Ryman Healthcare gaining 1.1% to $8.30.

"Good news is flowing for that company and investors are really starting to get in behind it and see the potential of the company's expansion strategy," Mr Williamson said.

Pacific Edge, the biotech firm, was the worst performer on the benchmark index, down 1.6% to 63c. Orion Health Group, the healthcare management software developer, fell 1.3% to $3.93. Trade Me Group, the online auction site, declined 0.9% to $3.35.

(BusinessDesk)