Sharemarket falls on Reserve Bank's more aggressive interest rate outlook

Wednesday, 25 May 2022

The benchmark S&P/NZX 50 Index slid 0.7%
The Reserve Bank flagged higher interest rates ahead
F&P Healthcare shares fell to a 2 ½ year low

The sharemarket fell after the Reserve Bank forecast more aggressive interest rate hikes than expected, as it focuses on getting inflation under control.

The S&P/NZX 50 Index reversed its earlier gains following the 2pm announcement on Wednesday, dropping 0.7%, or 73.661 points, to 11,173.37. On the wider market, 83 stocks fell, while 53 gained.

The central bank raised the official cash rate by 50 basis points to 2%, as expected. But it also forecast a more rapid pace of rate hikes ahead, predicting the OCR would climb above 3% this year and peak close to 4% next year.

“It was expected that they were going to increase rates by 50 basis points, but what they have also done is raise the outlook for future rate hikes which has cooled sentiment a bit,” said Devon Funds Management head of retail Greg Smith. “They remain very committed to bringing inflation back.”

Fisher & Paykel Healthcare experienced unprecedented demand for its products during the pandemic.

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Higher interest rates were negative for the sharemarket because they increased the relative attractiveness of bank deposits compared with dividend yields on stocks, and raised lending rates for businesses, he said.

Fisher & Paykel Healthcare, the biggest local stock on the market, slid 3.9% to $19.90, its lowest level since November 2019. The company reported a 28% drop in annual profit to $376.9 million as demand for its breathing aids slowed from the unprecedented high levels during the earlier stages of the Covid-19 pandemic.

“The result was in line, but there’s a lot of uncertainty about the outlook,” Smith said. “They’ve gone through a purple patch during the pandemic when they sold 10 years’ worth of hardware equipment in the last two financial years, so they have over earnt during Covid and those tailwinds are dissipating.

“Even with new variants or new waves, a lot of hospitals already have their hardware and are stocked up, so it’s making it difficult for the company and also investors to get a feel for what the future looks like.”

The focus was now turning to what other demand there was for the equipment post-Covid, he said.

Digital donation service Pushpay rose 3.6% to $1.45. The stock jumped 13% on Tuesday after United States investment firm Sixth Street Partners said it had inked a deal with fellow private equity firm, Australia’s BGH Capital, to work together on the potential acquisition of all or a substantial part of the shares in Pushpay. Other potential bidders are also circling.

The group hadn’t made a takeover offer yet, and market watchers were speculating on how much the potential bidders might pay for the stock, Smith said.

Sixth Street had paid $1.85 for its shares last year, but tech stock valuations had declined since then and analysts speculated the group may offer between $1.60 to $1.70 a share, he said.

Property for Industry rose 2.9% to $2.46 after announcing it would commence an on-market share buyback programme from next Tuesday. The property investor plans to buy back up to 5% of its shares at the prevailing market price over the next 12 months, which may cost it about $60m.

Genesis Energy announced its chief executive Marc England planned to leave towards the end of this year after six years in the role, and is in talks about an opportunity overseas. The announcement was made after the close of trading. Prior to the announcement, Genesis shares fell 0.7% to $2.69.

Asian stock markets were mixed on Wednesday after Wall Street sank on weak US housing sales and a profit warning by a prominent social media brand.

Shanghai, Hong Kong and Seoul advanced while Tokyo declined. Sydney's S&P-ASX 200 added 0.7%.

Wall Street's benchmark S&P 500 index lost 0.8% on Tuesday after the profit warning by Snapchat's parent company. Spooked investors dumped social media stocks. Construction stocks fell after US home sales plunged in April.

- With AP