NZ joins global equity rout

No stocks in New Zealand’s benchmark equity index rose today as the local market joined a sudden correction that hit exchanges around the world overnight.

Thursday, January 28th 2021, 7:06PM

by BusinessDesk

The S&P/NZX 50 Index fell 287.54 points, or 2.2 percent, to 13,086.46. Within the index, 48 stocks fell, and two were unchanged. Turnover was $151.9 million.

Key indices on Wall Street each tumbled more than 2 percent overnight, without any obvious trigger for the rout. Asian markets followed suit, with bourses in Australia and Hong Kong also down a similar amount.

The US Federal Reserve left its stimulatory monetary policy settings unchanged and earnings from US tech stocks were fairly positive.

However, investors have been increasingly frustrated by the slow delivery of vaccines and by US lawmakers delaying a decision on fiscal stimulus.

“Then among all this you have the madness of GameStop,” said Matthew Goodson, a director at Salt Funds.

Investors who have shorted stocks, such as GameStop, are likely to have been forced to sell some positions in other companies in order to raise funds to close their short position.

This sudden selling may have had a herding effect, as many investors have been worried about stretched asset prices more generally.

Goodson said short positions were likely being closed even if they are not the target of a squeeze yet, as short sellers will be getting nervous.

“Clearly some companies have absurd ‘bubble-cubed’ prices, but you’d have to be very brave to short them, because you might get stopped out before they top out,” he said.

Goodson said he wasn’t specifically concerned about GameStop trade, but warned this type of behaviour was seen in the run up to major market crashes in 1989 and 1999.

Strong rally

Equities have had a strong run in the past months and the NZX 50 is only down 0.1 percent this month, even after today’s fall.

Meridian Energy led the market lower, down 7 percent to $7.21 as it falls back to earth having been driven higher by offshore index funds during the holiday period. Contact Energy also fell 4.5 percent to $8.35.

US church donation firm Pushpay Holdings dropped 6 percent to $1.58 and Tourism Holdings fell 4.1 percent to $2.32.

NZX fell 3.8 percent to $2.04 after the Financial Markets Authority released a damning report into its inadequate handling of the cyber-attacks and spike in trading volumes last year.

The stock market operator has already flagged a price hike is likely to cover the cost of upgrading its IT systems.

Infratil-controlled Trustpower today announced it was testing the market for interest in a sale of its retail business.

The stock outperformed the market, falling just 0.3 percent to $8.73, today. Infratil fell 2.4 percent to $7.66.

“To own a retail power business, I think you need to have some generation, so the potential buyers are obvious,” Goodson said. The energy provider has a bundled retail business delivering electricity, gas, broadband and wireless connection services to 230,000 customers nationwide, as well as electricity generation operations.

Arvida, Fonterra

Arvida also avoided the worst of the selloff, after today announcing occupation rights sales surged in the three months ended December with strong momentum continuing into the current quarter.

Shares in the retirement village operator fell just 1.1 percent to $1.77.

Fonterra Shareholders’ Fund units and Investor Property were the only two stocks to avoid losses, ending unchanged at $4.51 and $2.23 respectively.

The risk-sensitive kiwi dollar was hit by sudden investor caution and fell almost 1 US cent. It was trading at 71.37 US cents at 5pm in Wellington, down from 72.28 cents yesterday.

The trade-weighted index was at 74.21 at 5pm, from 74.78 yesterday. The kiwi traded at 93.55 Australian cents from 93.39 cents, 74.47 yen from 74.97 yen, 59.02 euro cents from 59.45 cents, 52.21 British pence from 52.64 pence, and 4.6236 Chinese yuan from 4.6702 yuan.

Tags: Market Close