Reserve Bank measures limit virus-driven stock slide

Reserve Bank stimulus helped soften a fall by New Zealand equities as investors reacted to a covid-19 flare-up which has put Auckland back into a level-3 lockdown.

Wednesday, August 12th 2020, 6:52PM

by BusinessDesk

The S&P/NZX 50 Index declined 153.41 points, or 1.3 percent, to 11,491.91. Within the index, 42 stocks fell, six rose, and two were unchanged. Turnover was $218.8 million.

A hasty late-night press conference, in which the Prime Minster Jacinda Arden announced four unexplained cases of covid-19 and placed Auckland into at least a three-day lockdown, primed every stock in the index to fall at the open.

The market was down more than 2.5 percent in early trading - its biggest fall in two months - but rallied as investors processed the impacts of the lockdown and the Reserve Bank announced further stimulus which will support financial markets, said Shane Solly, a portfolio manager at Harbour Asset Management.

“There was a bit of an overreaction to start with,” he said. “But subsequently we’ve had comments from the Reserve Bank highlighting we’ve lots of ammunition to provide support to the economy.”

David McLeish, head of fixed income at Fisher Funds, said the Reserve Bank's expansion of its asset purchase programme to $100 billion showed it was willing to do whatever it takes to protect the economy.

“It was hard to imagine they could’ve been any more dovish than they were. It was certainly a big surprise,” he said. However, McLeish said the stimulus may boost financial assets more than the real economy.

Solly said the shutdown will have a limited effect, at this stage, as it is not nationwide, and many companies have rebuilt their balance sheets to be more resilient.

“The difference this time around is many of the companies have strategies in place to deal with shutdown,” he said.

However, the majority of stocks in the benchmark index were weaker with travel, retail and retirement stocks the worst affected.

Tourism Holdings led the market lower, dropped 7.4 percent to $1.75. The campervan rental company said no vehicle pick-ups would be permitted at either of its Auckland locations, but all other branches would remain open. Its Melbourne branch is already closed due to covid-19 restrictions in Victoria.

Other travel stocks were also hit, with Air New Zealand falling 3.6 percent to $1.325 and Auckland International Airport declining 0.5 percent to $6.29.

The government is restricting travel to and from Auckland. Air NZ said seating will be allocated to allow an empty seat between people travelling alone from Thursday.

Listed companies exposed to retail sales also took hefty losses as bricks and mortar stores in Auckland are forced to close.

Kiwi Property Group, which owns Auckland's Sylvia Park, fell 4.7 percent to $1.02. Stride Property, which also holds retail assets, fell 5.2 percent to $1.84 and outdoor equipment retailer Kathmandu dropped 2.6 percent to $1.14.

Solly said aged care providers were being sold today due to concerns older people were at higher risk during a covid outbreak.

Arvida Group dropped 5.7 percent to $1.50 and Oceania Healthcare declined 5 percent to 96 cents. These were the retirement village operators with the most exposure to aged care, whereas some of the other stocks have a greater development focus and were less affected, Solly said.

The Australian banks climbed on the day, as they were buoyed by a supportive earnings result from Commonwealth Bank of Australia across the Tasman.

Australia and New Zealand Banking Group rose 3.1 percent to $20.54 and Westpac Banking was up 3.4 percent at $19.75, the biggest gain on the day.

In a scheduled meeting, New Zealand’s Reserve Bank held the official cash rate at a record low 0.25, expanded its large-scale asset purchase programme to $100 billion and reiterated that negative interest rates and foreign assets purchases are still on the table. The decision was made before the level 3 restrictions were implemented.

“The New Zealand dollar had a much more muted response and was largely unchanged versus major trading partners,” said Fisher Funds' McLeish said.

The NZ dollar traded at 65.40 US cents at 5pm in Wellington from 66.21 cents yesterday. The trade-weighted index was at 72.16 from 72.81.

The kiwi traded at 91.95 Australian cents from 92.18 cents yesterday, 69.85 yen from 70.24 yen, 55.87 euro cents from 56.34 cents, 50.23 British pence from 50.60 pence, and 4.5475 Chinese yuan from 4.6029 yuan.

Tags: Market Close