While all the chatter in Australia is of the possibility of lower cash rates in 2015, over in New Zealand the outlook is for a potential increase on the official cash rate of 3.5%. This situation was confirmed after the Reserve Bank of New Zealand announced its monthly decisions on monetary policy today.
With a cash rate unusually high amongst the world's developed economies, New Zealand is now feeling the impact of an overvalued exchange rate much like Australia has in recent years. Similarly, despite the decline in prices of some of its key exports (dairy in New Zealand's case), the Kiwi dollar has remained strong due to the widening yield spreads with other currencies.
European countries for example have struggled with near zero interest rates for many years thanks to political mis-governance. Indeed, the political class in New Zealand have managed a relatively rare achievement among developed economies in delivering the basics of declining unemployment and economic growth.
Although it can lead to rising interest rates, strong growth generally spells good news for share prices and several Kiwi companies could be positioned to benefit.
SKYCITY Entertainment Group Limited-Ord (ASX: SKC) looks the pick of the trans-Tasman options thanks to its ownership of the SkyCity casino and entertainment complex in downtown Auckland. In the heart of a city now seeing strong net immigration it has a dominant position and competitive advantages not dissimilar to the Crown Resorts Ltd (ASX: CWN) casino in Melbourne.
The group has also been investing heavily in redeveloping its Adelaide and Auckland casinos and is reportedly interested in running a casino in Brisbane. The business offers a big yield in excess of 5% and trades on a price-earnings around 17. In my opinion it looks a buying opportunity.
Kathmandu Holdings Ltd (ASX: KMD) is an outdoor equipment and apparel retailer with substantial operations in both Australia and New Zealand. A strong Kiwi dollar reduces Australian dollar earnings when reported in NZ dollars, but conversely a strong New Zealand economy should support Kathmandu's sales. The business has also delivered strong sales growth in Australia despite a challenging retail environment.
It also has strategies to grow online sales globally and grow its presence in the UK market. Unfortunately, strategies don't count for much unless successfully executed and the UK plan looks a challenging one in my opinion. Online sales looks a more promising option and with fewer costs they certainly have profit-boosting potential.
Mighty River Power Ltd. (ASX: MYT) is a utility business that offers investors defensive earnings streams and lessons in the worth of renewable energy businesses. While investors in oil, coal and iron ore have seen the value of their portfolio head downhill faster than an Austrian skier recently, a renewable energy business like Mighty River offers relatively reliable long-term returns.
Of course environmental risks remains over hydro-electric power generation, but the stock is up around 40% over the last six months. The company valued at nearly $4 billion has scale and competitive advantages, which make its earnings streams relatively safe, with a 4.2% yield on a price-earnings ratio around 22.
