US update

Ralph Stewart reviews the NZ stock market reaction to Wall Street's opening yesterday and Day Two Trading on the NYSE.

Wednesday, September 19th 2001, 10:40AM

by Ralph Stewart

The NZ market yesterday ended on a steady note gaining 2.23% following Monday's trading when it shed 4.6% - a three year low. But there was an element of caution as many retail investors are still keen to reduce their equity exposure.

Corporate and institutional activity was low as illustrated by moderate turnover figures although there has been some impetus on the buy side if bargains are evident in quality stocks. Retail investors seemed to be the driver for activity as uncertainty of a larger than acceptable decline led many to sell stocks across the board. With the US only playing catch up to the European and Asian markets, bargain hunters returned yesterday pushing share prices higher, albeit in stocks that were over done.

As noted in earlier reports, history indicates that markets can bottom out a few weeks after a catastrophe but do recover within a reasonable period of time. With a threat of retaliation looming it is likely that an increasing number of companies may issue profit warnings in the coming weeks/months so in the short term markets could drift lower.

A complication in the NZ environment is the Air New Zealand fracas. Australian unions have called for a nationwide boycott of NZ companies and products which, if initiated, could have implications for growth prospects in the medium term. Strong political leadership will be required to negotiate a solution to this issue.
This morning the Reserve Bank has cut the Offiical Cash Rate by 50 basis points from 5.75 per cent to 5.25 per cent.

NYSE - 18 September
Following a not unexpected drop on Monday, US stocks rebounded early afternoon in the second day's trading. In the last hour of trading the tide turned although to a moderate extent compared to yesterday's activity. The losses were a small fraction of Monday's historic tumble, as investors were unwilling to mark up prices in the second trading day in a time of economic and military uncertainty.

The earlier rise may have been prompted by hopes for a federal bailout of airlines whose difficulties following last week's events have rippled across the US economy. A relief package may be crafted by early next week. While an airline trade group has called for US$24 billion, the final amount and type of aid may depend on fuel costs, insurance claims and issues still in flux. Hopes had been for an earlier solution and this is reflected in the drop in markets in the last hour of trading.

While consumer activity is understandably low, and could continue to be in the short term, it is good news to see that the US market can operate successfully following this major disruption. This sends out positive signals to the US community and the world.

Day Trading on NASDAQ and DJIA - 18 September 2001

Major indices at close 18 September
DJIA -0.19% S& P 500 -0.58% NASDAQ -1.55% ASX +1.83% Nikkei +1.85% FTSE 100 -1.02% DAX -0.94% NZSE 40 +2.22%

Market experts in NZ are clear that investors, now more than ever, will benefit enormously by taking a calm and considered long-term approach to investment.

This report was written by Ralph Stewart on Wednesday, 19 September, 9am

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