Prospect of rising interest rates weighs on sharemarket

Thursday, 17 June 2021

The sharemarket fell as more hawkish signals from the United States central bank and stronger-than-expected GDP in New Zealand brought higher interest rates into focus.

The benchmark S&P/NZX 50 Index slipped 0.3 per cent, or 40.401 points, to 12,541.20 on Thursday.

Most stock markets in Asia followed Wall Street lower after the US Federal Reserve, which previously forecast no interest rate hikes before 2024, estimated its benchmark rate would be raised twice by late 2023 as the US economy improves faster than expected.

Meanwhile, stronger-than-expected growth data in New Zealand has prompted economists to bring forward forecasts for interest rate hikes.

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The prospect of higher interest rates weighed on the sharemarket.

Stats NZ reported GDP jumped 1.6 per cent in the three months to the end of March, much stronger than economists and the Reserve Bank had been expecting. The Reserve Bank had pencilled in a 0.6 per cent drop in GDP for the quarter and the Treasury a 0.2 per cent drop.

Ultra-low interest rates have propelled a global stock market rebound from last year's plunge amid the coronavirus pandemic.

“The spectre of interest rates beginning to rise again from record lows is something that causes volatility because low interest rates have been very supportive of asset prices and if they start rising again that’s going to become a headwind for asset prices,” said Craigs Investment Partners head of private wealth research Mark Lister.

“The economy is ticking over nicely, we are in good shape, and we are performing well, but that good news has seen financial markets and some of the bank economists start to speculate on whether we will see the OCR rise sooner than we might have thought.

“We are happy that things are going well and the economy is strong, but if that’s the case then we don’t need to have these emergency interest rate settings, so they might start to go back to something more normal and that’s a bad thing for the housing market, the sharemarket, and so forth.

”Property does well when interest rates are low, so if you have got the potential for interest rates to begin creeping up again, that’s probably a headwind for property.”

Property For Industry was down 1 per cent to $2.85, Argosy Property was down 1 per cent to $1.55, Vital Healthcare Property Trust was down 1.8 per cent to $3.03, Stride Property was down 0.8 per cent to $2.41, and Goodman Property Trust was down 0.2 per cent to $2.29.

Precinct Properties bucked the trend, up 0.3 per cent to $1.59, while Kiwi Property Group was unchanged at $1.17.

The Fonterra Shareholders Fund, which gives investors outside the co-operative access to its dividends, was the biggest decliner, with the units down 4.6 per cent to $3.70.

Energy industry software firm Gentrack fell 1.9 per cent to $2.04. A fifth of the company changed hands overnight after two investors sold out of the stock.

“They are a company that has had a bit of a mixed track record, they have certainly had their ups and downs, more downs than ups, but they have managed to put a few runs on the board just recently and it feels like they might have got themselves back on track,” Lister said.

Among the gainers, Z Energy rose 1.6 per cent to $2.58 after the fuel retailer reiterated its guidance for profits and dividends in the coming year at its annual meeting.

Investors took comfort in the trading update which comes amid uncertainty about the outlook as the country transitions to electric vehicles, Lister said.

– With AP