Cold water poured on V-shaped recovery

New Zealand shares fell after the US Federal Reserve's pessimistic economic outlook threw cold water on markets that had priced in a V-shaped recovery.

Thursday, June 11th 2020, 5:59PM

by BusinessDesk

The S&P/NZX 50 Index dropped 105.59 points, or 0.9 percent, to 11,154.93. Within the index, 37 stocks fell, 11 rose, and two were unchanged. Turnover was $185 million.

Share markets across Asia-Pacific reacted negatively to a downbeat economic outlook from the Fed, predicting the US economy would shrink 6.5 percent and unemployment would near 10 percent this year, contradicting investors who had been betting on a swift recovery from the pandemic.

Michael McCarthy, an analyst at CMC Markets, said there had been some expectation that economic projections may be improved following positive May jobs data in the US.

“The fact that they didn’t revise upwards really skittled sentiment,” he said.

“There was a lot of optimism about a potential V-shaped recovery and we’ve had some cold water in the face of those expectations.”

The shock to investor sentiment broke an eight-day run higher in Australia, where the S&P/ASX 200 Index dropped 2.9 percent in its biggest fall since April. Hong Kong’s Hang Seng fell 1 percent and Japan’s Topix was down 1.9 percent.

Air New Zealand led the local market lower, plunging 10.8 percent to $1.66. McCarthy said the vanishing optimism prompted speculative investors who had piled into the stock to exit just as quickly.

Kathmandu Holdings fell 9.2 percent to $1.19, and is now down 2.5 percent this week despite strong gains on Monday.

Westpac Banking Corp dropped 7.5 percent to $19.80 and Australia & New Zealand Banking Group declined 5.6 percent to $20.92.

McCarthy said a steady low-interest rate environment made it harder for banks to increase margins and were always vulnerable to a downturn.

“Banks are leveraged to the economic cycle, when we see growth concerns kicking in they often feel the weight of it,” he said.

Gentrack Group fell 7.2 percent to $1.67. The stock is tipped to be relegated out of the NZX 50 in the index's rebalancing tomorrow. Napier Port, which is expected to replace Gentrack, fell 2.2 percent to $3.54.

Companies tied to the economic recovery were also under pressure.

SkyCity Entertainment Group slipped 4.6 percent to $2.91, Sky Network Television dropped 3.2 percent to 18 cents and Auckland International Airport fell 2.3 percent to $6.75.

Tourism Holdings dropped 2.1 percent to $2.34. The rental campervan operator said it was seeing domestic demand gain momentum in New Zealand, Australia, and the United States.

Fisher & Paykel Healthcare posted the day's biggest gain, rising 1.9 percent to $28.85. The kiwi dollar dropped on the gloomier economic outlook today, which is a boon for F&P which generates half of its revenue in US dollars.

Meridian Energy rose 0.8 percent to $4.89, while Contact Energy fell 1.1 percent to $6.30.

Outside the benchmark index, medicinal cannabis research firm Cannasouth rose 2 percent to 52 cents after it said it was considering a move into animal products as part of its diversification into value-added markets for its cannabinoid products.

Tags: Market Close