Sharemarket slips as investors eye the prospect of higher interest rates

Thursday, 12 August 2021

The sharemarket weakened as investors fretted over the prospect of higher interest rates and a slower-than-expected opening of the borders.

The benchmark S&P/NZX 50 Index slipped 66.257 points, or 0.5 per cent, to 12,681.81 on Thursday.

“Today we were weaker,” said Fat Prophets head of research Greg Smith. “This view that interest rates are going higher is really on investors’ minds in New Zealand now that we have the Reserve Bank almost certainly, in my view, putting up rates next week.

“That’s going to upset the apple cart a little bit as it relates to high yielding plays, higher growth plays, and I suppose there’s a little bit of uncertainty about just how quickly those rates are going to be raised.”

* Sharemarket falls as investors anticipate future interest rate hikes

* Fisher & Paykel Healthcare's 1.9 per cent gain gives S&P/NZX50 a boost

The Reserve Bank is expected to lift interest rates next week, reducing the appeal of higher yielding stocks.

The Reserve Bank is expected to lift the benchmark interest rate from a record low 0.25 per cent next week, and some economists have speculated it may reach 1 per cent by the end of year amid concerns about higher inflation.

Growth stocks weakened, with Fisher & Paykel Healthcare down 2.8 per cent to $30.90.

Higher yielding stocks also fell. Meridian Energy slipped 1.2 per cent to $5.175 while Mercury dropped 2.6 per cent to $6.715.

More than 30 companies are set to report their financial results this month, and investors will be focused on their outlook statements, Smith said.

Prime Minister Jacinda Ardern detailed the Government’s plan for opening up the borders, which Smith said was happening slower than expected.

Under the plan, vaccinated workers will be able to participate in a pilot scheme from October where they can travel overseas and then self-isolate at home, rather than going into managed isolation.

The Government will then look to broaden out quarantine-free travel for vaccinated Kiwis from the first quarter of 2022, with different “risk pathways” based on how dangerous a country is.

“Whilst there are lots of positives about the re-opening plan, it is all occurring a bit slower than was anticipated going back a few months,” Smith said. “The Delta variant has really thrown a spanner in the works.

“There’s plenty of reasons to be positive, but those things are weighing on investors minds right now.”

Asian shares were mixed on Thursday as caution set in among investors following another wobbly day of trading on Wall Street.

On Wall Street on Wednesday, banks and industrial companies helped lift stocks mostly higher, pushing the S&P 500 and Dow Jones Industrial Average past the record highs they set a day earlier.

Nearly three-fourths of the companies in the benchmark index notched gains, including energy stocks, which rose along with the price of crude oil. Health care was the only sector to fall.

The S&P 500 index rose 10.95 points to 4,447.70. The Dow gained 220.30 points to 35,484.97.

– With AP