Milk Squeeze Imperils Record N.Z. Stock Rally: Chart of the Day

New Zealand’s slowing economic growth is threatening its share rally after valuations of the benchmark gauge reached the highest since the global financial crisis.

The CHART OF THE DAY shows the projected price-earnings ratio on the NZX 50 Index advanced to 18.9 on Dec. 29, the highest level since 2009, compared with 16.7 on the MSCI World Index of developed equities. The New Zealand measure closed at an all-time high yesterday. The lower panel shows economists forecast a slowdown in the country’s growth over the next two years, compared with an acceleration for Group of 10 economies.

“The New Zealand market remains overvalued,” said Nachi Moghe, a Wellington-based analyst at Morningstar Inc. “The New Zealand economy could face headwinds in 2015 as the impact of lower dairy prices impinges on the agricultural sector.”

While New Zealand’s annual gross domestic product was estimated to have expanded 3.5 percent in 2014, the most since 2007, growth will slow to 2.9 percent this year and 2.5 percent in 2016, according to economists’ forecasts compiled by Bloomberg. Falling milk-powder prices may crimp exports, which make up about 30 percent of the economy. New Zealand is home to the world’s biggest dairy exporter.

Growth is forecast to accelerate in the world’s 10 largest economies during the next two years. The New Zealand stock gauge rallied 18 percent in 2014, second only to Denmark among 24 developed markets tracked by Bloomberg, and closed yesterday at an all-time high.

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