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NZX 50 dips towards technical correction

New Zealand's main share index fell as a handful of discouraging trading updates from listed companies dovetailed with higher bond yields to depress equity prices. Fishery firm Sanford led the market lower after being fined in court for illegal fishing practices.

Tuesday, February 23rd 2021, 6:40PM

by BusinessDesk

The S&P/NZX 50 Index fell 37.40 points, or 0.3%, to 12,388.84. Within the index, 24 stocks fell, 20 rose and six were unchanged. Turnover was $198.3 million.

Today’s decline brings the benchmark equity index more than 9% below its Jan 8 record — a technical correction in financial markets is defined as being a 10% decline from its most recent peak. 

The index’s decline begun with renewable energy stocks falling from unreasonable heights in January but has continued as bond yields have surged, undermining asset prices.

ASB economist Mike Jones said with the 10-year swap rates sitting above 1.7% and the 2-year swap rate at just 0.3%, the yield curve was the steepest it had been since early 2014.

Investors are pricing in the possibility the Reserve Bank of New Zealand could hike the official cash rate to 0.5% as soon as May next year.

The market will be highly sensitive to any guidance given by the central bank in its monetary policy statement tomorrow, Jones said.

Meanwhile, share prices have been sliding as the higher return on fixed-income investments dragged down the valuation of equity assets. 

Chief global markets strategist at Axi, Stephen Innes, said with 10-year bonds yields at 1.5% the ‘fair value’ of Asian growth stocks could fall 3%. If yields hit 2-to-2.5%, then some valuations might fall 10-to-15%.

To add to the pressure from bond prices, local corporate news had a negative tone with several companies giving discouraging updates.

Sanford shares dropped 4.7% to $4.30 after it was fined in the Christchurch District Court and ordered to forfeit a $20 million fishing vessel that was used to illegally fish in a protected area.

Sky Network Television dropped 4.4% to 17.4 cents despite tripling its half-year profit. The improved result came from reduced expenses as the pandemic put productions and sports events on hold. The media group’s revenue fell 7.3% to $356.9m.

Mercury NZ dropped 3.6% to $6.15, after it cut $15 million from its full-year earnings guidance due to a lack of rain in its Taupō catchment. It is now expecting to report earnings of $520m for the June year.

Shares in Vector also fell, despite posting a solid half-year result. The energy utility firm said adjusted earnings were up $9.3m, or 3.5% on last year, at $273.8m.

Full-year earnings are now expected to be between $500m-to-$520m, up from previous guidance of $480m-to-$500m. Still, the firm’s share price dropped 3.6% to $4.07.

Air New Zealand was up 2.6% at $1.5950, and Auckland International Airport also bounced after its half-year earnings result last Thursday. It rose by 3.9% to $7.14.

Jarden analysts lifted its target price to $7.10 following the result, while Forsyth Barr analysts trimmed its target to $6.90.

Both firms gave the airport a ‘neutral’ rating, noting the airport was a high-quality asset in the long-term but that rising bond yields was impacting its valuation.

Shares in Summerset Group Holdings rose 1.8% at $12.79 as the national housing shortage pumped up the valuation of its retirement villages.

The company reported bottom-line annual profit was up 32% but its underlying result was down 7% due to the added costs of dealing with the covid-19 pandemic.

The NZD reached its highest level in nearly three years, touching 73.38 mid-afternoon yesterday, helped along by rising bond yields.

By 5pm today, the kiwi dollar was trading 73.17 US cents, still up from 73.09 cents at the same time yesterday.

The trade-weighted index was at 75.33 at 5pm, from 75.39 yesterday. The kiwi traded at 92.46 Australian cents from 92.77 cents, 76.84 yen from 77.20 yen, 60.14 euro cents from 60.29 cents, 52.00 British pence from 52.13 pence, and 4.7257 Chinese yuan from 4.7235 yuan.

Tags: Market Close

« High bond yields rout equity marketShares fall as investors call RBNZ's bluff »

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Last updated: 4 March 2021 8:47am

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