NZX slides after coronavirus fears hammer Wall Street and world markets

Tuesday, 25 February 2020

The New Zealand sharemarket recouped most of its losses Tuesday in a volatile day on world markets amid concerns over the ongoing economic impact of the coronavirus.

The NZX top 50 index closed down 1.16 per cent at 11,719.23 points, having been down 3.5 per cent during the day. In Australia, the S&P/ASX 50 was also down 1.83 per cent just after 5pm.

Both markets rallied in mid-afternoon trading after the Japan's Nikkei Index opened sharply lower before regaining ground throughout the morning.

Oil prices are also down over 5 per cent and interest rates are being cut as markets price in central bank moves to help cushion the economic damage.

Hamilton Hindin Greene investment adviser Jeremy Sullivan says there will be an impact on Kiwisaver but investors need to keep an eye on longer-term outcomes.

* Air New Zealand forecasts $35m-$75m coronavirus profit hit**

Hamilton Hindin Greene investment adviser Jeremy Sullivan said the market was dynamic at moment and could change quickly.

Sullivan said New Zealanders would probably notice the sharemarket shifts in their Kiwisaver accounts.

'Millions of people have KiwiSaver and they will be invested in shares. The market will effect them,' Sullivan said.

'This is the largest move in four years. It is far reaching and on the back of coronavirus spreading past mainland China, it doesn't look like it will be slowing down any time soon.'

Economist Shamubeel Eaqub says the markets have been relatively calm in the face of coronavirus till now.

But Sullivan advised investors to have a longer-term outlook.

'We have been through these before, whether it be H1N1 or Sars. The sharemarkets have been through the Spanish Flu of 1918 and world wars, at the time it must have been pretty serious in what you were hearing but the sun will come tomorrow.'

Shamubeel Eaqub said the level of impact of the sharemarket shifts on KiwiSaver would depend on the age of the investor.

'If you are nearing retirement this is a good reminder that you have your funds in the appropriate kind of risk. But for the majority of KiwiSavers, it makes no sense to change your asset allocation.'

Volatility is the tone of world sharemarkets this week as fears mount over the impact of the fast-spreading coronavirus.

Equab said the market had been surprisingly sanguine until now.

'I was surprised at how blase the market had been because all the indications have been that the virus is rather more stubborn than Sars and the economic linkages of China compared to when Sars happened is about six times more significant so the economic impact will be way larger.'

The implications of the virus for investors was becoming much clearer now, he said.

Fears are being fuelled by reports that the virus has picked up pace outside China, with a big jump in infections in South Korea and Italy and several Middle Eastern countries notifying their first cases.

Auckland Airport and Air New Zealand's share prices have been among the first casualties of coronavirus concerns, because of their sensitivity to tourist numbers.

China initially announced it was lifting the quarantine of Wuhan, but later retracted the statement, 'which didn't do a lot for confidence,' ASB said in a note.

However, the fast-developing coronavirus situation was clearly hanging over trading in several stocks including Air New Zealand, which was down 2.9 per cent by early Tuesday afternoon to $2.505 a share. The stock was down from nearly $3 at the end of last month.

Air New Zealand estimates it will lose between $35 million and $75m of profit, due to the virus.

Likewise, Auckland International Airport's share price is nearly 2 per cent lower at $8.16, a sharp drop from $8.65 last Friday, as Chinese tourist numbers dwindle and Asian air routes are axed.

The Government announced on Monday that it was extending the travel ban on visitors from China.

Michael McCarthy, chief strategiest at CMC Market and Stockbroking, said investors were finally beginning to catch up with other markets and acknowledging the potential supply and demand shocks.

'The disruption to supply chains if countries close borders to contain outbreaks could see global trade grind to a halt.'

Imre Speizer, head of NZ strategy at Westpac, said sharemarkets were becoming resigned to the fact the virus was not a short-term fix.

'Markets appeared to be concerned at the acceleration in virus cases outside China, notably South Korea and Italy, and the potential for a longer disruption to global activity than previously expected.'