US dive brings down NZ stocks

New Zealand's headline share index slipped on Thursday after key indices on Wall Street plunged overnight, after another big retailer reported poor earnings and set recession alarms ringing.

Thursday, May 19th 2022, 6:20PM

by BusinessDesk

The S&P/NZX 50 Index fell 51.34 points, or 0.5%, to 11,206.93. Turnover was $113 million.

Stocks had been heading higher for several days as investors stepped in to buy heavily sold companies, but the rally broke last night when Target reported its net profit had halved.

“The relief-rally trapdoor sprung … after Target's earnings results exacerbated some recession fears and continued the theme of rising inventories detailed by Walmart on Tuesday,” said Stephen Innes, managing partner at SPI Asset Management.

CMC Markets analyst Tina Teng said the United Kingdom’s April consumer price data was also sparking concern about the global economy.

The most recent release showed the fastest rate of inflation in 40 years, with prices up 9% from last year.

In New Zealand, the government budget was released on Thursday afternoon alongside fresh economic forecasts from Treasury.

The economy is expected to grow 4.2% in the year ending June 2023, but slow down markedly in the two following years at just 0.7% and 1.6% respectively.

Treasury predicted inflation would be 5.2% in the 2023 year and not fall back into the Reserve Bank’s target range until 2025.

The Reserve Bank of New Zealand is expected to deliver another 50 basis-point rate hike in its monetary policy statement next Wednesday, in an effort to curb inflation.

Teng said these global headwinds and local monetary tightening were putting pressure on local equity markets.

Travel software company Serko led the market lower. It tumbled 7.8% to $4.15 as analysts released negative research reports about its recent full year result.

Jarden analyst Guy Hooper trimmed his target price to $4.50, saying the company had a “significant market opportunity” but that it hadn’t pulled in as much revenue as expected.

“We view the current price as reflecting an optimistic view of execution on offshore growth given the early stage,” he said this morning, when shares were trading at $4.50.

Consumer stocks were down with weak retail reports from the US likely spooking investors.

The Warehouse Group dropped 5.5% to $3.26, Michael Hill International fell 5% to $1.15, KMD Brands was down 3.4% at $1.15, and Restaurant Brands NZ declined 3.4% to $11.50.

Some stocks rose above the negative sentiment, such as Tourism Holdings, which jumped 4.5% to $2.79. The 2022 budget included $288m of investment in tourism recovery, including $54m for an innovation fund.

Shares in infrastructure investor Infratil jumped 2.5% to $8.10 after it reported a record $1.2b net profit thanks to the sale of Tilt Renewables last year.

The assets in its portfolio are also increasing in value, although analysts on the investor call today expressed some scepticism about the climbing valuations in the context of climbing interest rates and falling asset prices.

The NZ dollar climbed a third of a US cent following the public release of the government budget at 2pm today.

ASB Bank said the fiscal policy outlined in the budget was more generous than some might have expected, which is supportive of short-term interest rates and the NZ dollar.

While the budget is expected to pull back on demand, relative to the previous budget, it is doing so less than forecast in the half-year economic update. The kiwi dollar traded as high as 63.43 US cents in Wellington this afternoon, up from about 63 cents prior to the budget release.

Tags: Market Close