NZX dodges bullet after a partial recovery on Wall Street

Wednesday, 7 February 2018

NZ shares escaped the global slide on Tuesday, but are set to take a fall today.

Fears of a steep dive on the NZX sharemarket were averted on Wednesday after a partial recovery on Wall Street took the sting out of what had been expected to be an ugly day's trading.

The NZX50 opened down 1.9 per cent after dodging the worst of the global correction thanks to the Waitangi Day holiday on Tuesday.

It closed down only 0.6 per cent, or 47 points lower, after investors appeared to conclude that the long-forecast correction that has rattled global markets might be over and started hunting for bargains.

Sharemarkets around the world fell sharply on Tuesday, when New Zealand financial markets were closed.

But the S&P 500 index regained 1.75 per cent and the Nasdaq composite index closed up 2.1 per cent on Wednesday morning, New Zealand time, just in time for the reopening of New Zealand exchange.

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The gains in the US represented a significant shift in sentiment, as the Nasdaq had initially opened 2 per cent lower overnight on Tuesday.

The Australian ASX200 index was up 1 per cent at 5pm on Wednesday, after dropping 3.2 per cent on Tuesday when it experienced its worst one-day point fall since September, 2015.

Auckland International Airport and Fisher & Paykel Healthcare – which have been trading places as the top stocks on the NZX over the past few months – were down 1.2 per cent and 1 per cent, respectively, shortly before the NZX closed.

High-flyer A2 Milk, which succumbed to profit-taking in recent sessions, slipped a further 2.2 per cent.

In the previous US trading session on Tuesday morning, NZ time, the Nasdaq composite index fell 3.8 per cent and the S&P 500 was down 4.1 per cent.

Finance Minister Grant Robertson said he was keeping a close watch on global markets but was confident in the strength and stability of the New Zealand economy.

'We are seeing global growth stronger than it has been for some years, which should continue to support exports and growth in New Zealand,' he said.

'This Government is focussed on playing its part by ensuring the Government's books are in a strong position under our Budget Responsibility Rules, which keep government expenses and debt in check and ensure we run sustainable surpluses.'

Commentators have reminded local investors that they should focus on the longer term, saying the economy is still in good shape.

John Carren, a senior economist at Kiwisaver operator Kiwi Wealth, said stock markets operate at 'a historic long run risk level of 18 per cent volatility'.

'That means that two-thirds of the time they can be up or down 18 per cent in any one year. In this context even a 10 per cent correction is nothing to be concerned about.'

BNZ's head of wealth and private banking, Donna Nicolof, agreed. 'Market downturns happen. Sometimes they're big. But they are a part of investing, so there's no reason to panic.'

Head of wealth research at Craigs Investment Partners, Mark Lister, said the NZX was not likely to fall as much as elsewhere, because the interest rate rises that had led to the stock market plunges were not a factor here.

People don't need to panic, as they should be investing for the long-term. 'It's not something impacting the economy, it's limited to the sharemarket,' he told RNZ.

President Trump, who had taken credit for US market strength, avoided any mention of the stock market during an economic speech on Monday (Tuesday NZ time) in Ohio, ignoring questions reporters shouted at him as he returned to the White House.