New Zealand Stocks Nearing `Deep Value,' Says Goldman Sachs

By Shani Raja

July 8 (Bloomberg) -- New Zealand's benchmark stock index may rally 17 percent in the next 12 months after plunging by a quarter over the past year, Goldman Sachs JBWere Ltd. said.

The nation's equities are approaching ``deep value,'' with interest rate cuts expected to improve the outlook for the stock market, Goldman's Auckland-based strategist Bernard Doyle said in a research note released today. The NZX 50 Index has slumped 26 percent in the past 12 months, valuing its members at 10.7 times reported profit, the second-cheapest in Asia behind Singapore.

Weak profit expectations and spending plans among New Zealand companies suggest the economy may have slumped into a recession after it contracted in the first quarter, the New Zealand Institute of Economic Research said today in Wellington. Twelve of 13 economists surveyed by Bloomberg say Reserve Bank of New Zealand Governor Alan Bollard will lower borrowing costs from a record-high 8.25 percent before Sept. 30.

``New Zealand is close to levels that have equated to compelling entry points in the past,'' Doyle wrote. ``The sooner the RBNZ cuts interest rates, the sooner New Zealand equities can look forward to an improving environment.''

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net.