Energy stocks tank, pulling down sharemarket, as investors eye growth

Friday, 12 February 2021

The sharemarket fell as signs of economic recovery prompted investors to shed dividend stocks which are less appealing as interest rates rise.

The benchmark S&P/NZX 50 Index dropped 171.491 points, or 1.3 per cent, to 12,589.64 on Friday.

“It wasn’t a great day on the market – the dividend stocks came off a little,” said Grant Davies, an investment adviser at Hamilton Hindin Greene. “Most of the damage was done in the power companies.”

Utility stocks like power companies are attractive for their dividend yield in times when interest rates are low, however as the economy gathers steam investors seek out higher returns elsewhere.

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Meridian Energy slumped 7 per cent to $5.81, Contact Energy dropped 5.1 per cent to $7.20, Mercury NZ fell 4.1 per cent to $6.80, and Genesis Energy shed 2.4 per cent to $3.805.

“They have all had a pretty good run over the last six months,” Davies said. “A lot of that was on the back of falling interest rates and since then we have seen market rates stabilise and creep up a little bit.”

Separately, brokerage Forsyth Barr said the “wild” demand for clean energy stocks driven by exchange traded fund buying was expected to come to an end as a result of upcoming changes in an S&P clean energy index.

Air New Zealand fell 1 per cent to $1.565 after the national carrier confirmed plans to raise additional money by selling shares in the company by June 30. The Government, which owns 52 per cent of the airline, said it would support the equity raising.

“A capital raise is done at a discount to the market price, that’s how you encourage people to buy the new shares rather than the shares on the market, and often that will mean the share price will weaken,” said Davies.

Analysts said the airline may need to raise between $1 billion to $1.5b, although the longer border restrictions are in place, the more likelihood there is that it could seek even more.

“It is a large capital raising and I expect there would be a bit of a discount to get that across the line,” Davies said.

Air New Zealand is due to report its first-half earnings on February 25 and investors will look at how the company is tracking as they mull whether to take part in the offer, he said.

The biggest gainer on the market was Rakon, which jumped 9.1 per cent to 84 cents. The stock earlier touched a five-year high of 88 cents after the electronic componentry maker advised it has secured several significant orders from new and existing customers including a ''material order from a new multi-national customer''.

The company said the orders would be delivered over the next two financial years, and were expected to increase its revenue next year by at least 20 per cent on the current financial year.

Kathmandu Holdings fell 3 per cent to $1.28 after the retailer said it expects first-half revenue to lift by about 12 per cent as it benefits from higher sales from its new surf brand Rip Curl while international travel curbs hurt its Kathmandu outdoor travel and adventure sales.

While the sales were positive, profit margins may be under pressure, and the company may not be performing as well as other retailers, Davies said.

Elsewhere, another day of choppy trading on Wall Street left the major United States stock indexes nearly flat Thursday, although the S&P 500 and Nasdaq composite still hit all-time highs.

Investors remain cautiously optimistic about prospects for a new round of government aid as the US economic recovery seemingly stalls.

Shares fell in Tokyo and Sydney on Friday. Most Asian markets were closed to mark the Lunar New Year.

_ With AP