Shares fall in NZ, first market to open after US credit rating cut
Aug. 8 (BusinessDesk) – New Zealand shares fell, pushing the NZX 50 Index to an 11-month low, and may extend their slide as equity markets open across Asia following America’s first-ever credit rating downgrade. Fletcher Building, Contact Energy and Telecom, the biggest companies on the bourse, paced the decline.
The NZX 50 fell 109.69, or 3.3%, to 3166.813 in the first 20 minutes of trading, heading for the lowest close since Sept. 30. No stocks rose on the index at the open. The slide mirrored the decline in U.S. stock futures and paves the way for a sell-off across Asia.
“This is the fear side of the market showing its ugly head right now,” said Alan Moore, who helps manage $600 million at Milford Asset Management. Still, “there doesn’t seem to be any great degree of panic - 2008 was a far worse scenario than this one.”
New Zealand is the first stock market to open after Standard & Poor’s cut the U.S. debt rating to AA+ from AAA in a review that criticised the seeming unwillingness of the U.S. Congress to tackle a vast debt burden. America may yet be in denial over the seriousness of the move, with the U.S. Treasury and billionaire businessman Warren Buffet both reported as saying S&P had erred in making the cut.
The kiwi dollar hasn’t yet moved much from where it ended up in New York on Friday, trading at 83.58 U.S. cents. Government bonds rose, pushing the yield on the 10-year benchmark bond down 9 basis points to 4.51%. The two-year swap rate tumbled 10 basis points to 3.24%.
Fletcher, the biggest company on the NZX 50 by market value, tumbled 4% to $7.40, the lowest since Aug. 20, 2010. Shares of the construction company fell even though it has an ‘outperform’ rating, based on a Reuters poll.
Contact fell 2.6% to $4.90 and Telecom dropped about 2% to $2.52.
The credit rating cut comes on the eve of earnings season for New Zealand companies, which is expected to show companies have struggled to lift earnings even as the economy local recovers.
With eyes on sovereign debt in the U.S. and Europe, “if this continues for a while, earnings will be a secondary issue,” said James Lindsay, an equities manager at Tyndall Investment Management.
Nuplex Industries, which sells specialty chemicals in Asia and Europe, dropped 6.3% to $2.40. Fisher & Paykel Healthcare, which counts the U.S. as its biggest market, fell 5.2%to $2.36.
PGG Wrightson, the rural services company, fell 6.3% to 45 cents.