Sharemarket slips as higher market interest rates weigh on valuations

Tuesday, 2 November 2021

The New Zealand sharemarket slipped in quiet trading as higher market interest rates dent the appeal of equities.

The benchmark S&P/NZX 50 Index fell 37.813 points, or 0.3 per cent, to 12,992.50 on Tuesday, following a 0.5 per cent drop on Monday and continuing a weak start to November.

“We are in a quietish patch,” Hobson Wealth Partners investment adviser Brad Gordon said. “There has been very little news other than interest rates, which are dominating.”

Gordon said that over the past month the five-year swap rate had jumped from 1.85 per cent to 2.58 per cent. Swaps are often used by investors to indicate views on where borrowing costs will go.

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Higher market interest rates are denting the appeal of shares.

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He said the move in the rate was an “incredible shift” in a short time, which had unsettled investors.

Higher interest rates are a headwind for equities and generally dent their valuations.

The New Zealand market has a high proportion of yield-sensitive stocks such as utilities and real estate.

“It has an impact on all stocks, but all the yield stocks are struggling,” Gordon said.

On Tuesday, Contact Energy’s share price fell 0.5 per cent to $8.06 a share, while Spark fell 0.6 per cent to $4.525, Chorus fell 1.6 per cent to $6.32, Genesis Energy fell 2 per cent to $3.21, and Mercury fell 1.5 per cent to $6.08.

Precinct Properties fell 1.8 per cent to $1.62 a share, while Argosy Property fell 0.7 per cent to $1.54, Property For Industry fell 0.7 per cent to $2.91, Stride Property fell 2.5 per cent to $2.30, and Goodman Property fell 2.2 per cent to $2.435.

Meanwhile, so-called cyclical stocks that would benefit from an economic recovery showed gains.

Restaurant Brands’ share price increased 0.5 per cent to $15.24 a share; Skellerup Holdings rose 1.3 per cent to $6.42; and Tourism Holdings advanced 0.4 per cent to $2.76.

Gordon said the market was drifting, with a lack of New Zealand specific news. Investors were looking ahead to next week when a handful of companies were due to report their first-half earnings, including Trustpower, Mainfreight, Pushpay Holdings, Infratil and Goodman Property.

Elsewhere, Asian shares were mixed on Tuesday amid cautious trading ahead of a policy meeting by the United States Federal Reserve.

With inflation in the US at its highest point in three decades, the Federal Reserve is set this week to begin winding down the extraordinary stimulus it has given the economy since the pandemic recession struck early last year, a process that could prove a risky balancing act.

Chairman Jerome Powell has signalled the Fed will announce after its policy meeting on Wednesday that it will start paring back its US$120 billion (NZ$167 billion) in monthly bond purchases as soon as this month. Those purchases are intended to keep long-term loan rates low to encourage borrowing and spending.

US stocks closed with modest gains on Wall Street on Monday, extending the major indexes' recent record-setting run.

The S&P 500 rose 0.2 per cent to 4,613.67 after spending much of the day wavering between small gains and losses. The Dow Jones Industrial Average added 0.3 per cent to 35,913.64 and the Nasdaq rose 0.6 per cent to 15,595.92. The gains pushed the three indexes above the all-time highs they set on Friday.

– With AP