Shares rise as negative interest rates loom

Shares on New Zealand’s benchmark index rallied as central bank stimulus helped fuel a bounce back from lockdown-related selling last week. Summerset led the market higher on a strong earnings result.

Monday, August 17th 2020, 6:38PM

by BusinessDesk

The S&P/NZX 50 Index rose 220.81 points, or 1.9 percent, to 11,672.95 — the biggest gain since mid-June. Within the index, 40 stocks rose, six fell and four were unchanged. Turnover was $136.3 million.

The Reserve Bank of NZ, which looks increasingly likely to implement negative interest rates, helped fuel the benchmark’s gain since as investors turned to the share market for yield.

The index recovered much of the losses it sustained after the virus flare-up caused the market to finish last week 2.7 percent below its Tuesday close.

“We’ve seen the RBNZ come through very dovish and some banks forecast rates going lower. That is pushing people toward yield producing equities,” Chris Smith, NZ general manager at CMC said.

Today, ASB Bank economists said they now expect the RBNZ to cut the official cash rate to -0.5 percent early next year, causing investors to renew their hunt for stocks paying dividends.

Retirement village operator and developer Summerset Group Holdings attracted buyers after it maintained its interim dividend in a better-than-expected earnings result.

Net profit for the first-half of the financial year fell 99 percent owing to write-downs in the value of its villages and covid-related impacts, but its underlying result came in at the top end of the company's guidance.

Shares in the company rose 5.4 percent to $7.77, recovering after falling as low as $7.10 after the virus outbreak was reported last Tuesday night.

Sam Dickie, Fisher Funds’ senior portfolio manager, said since balance date Summerset’s total sales volumes had increased significantly compared to the same period last year.

“This is because they did such a good job looking after their vulnerable residents during lockdown so the appeal of the villages has increased markedly,” he said.

The upbeat sales sentiment flowed over to other stocks in the retirement and property sector, which also saw strong gains.

Ryman Healthcare rose 5.3 percent to $13.05, Kiwi Property Group advanced 4.1 percent to $1.015, Oceania Healthcare was up 3.1 percent at 99 cents, and Stride Property rose 2.2 percent to $1.85. All these stocks were sold off last week amid fears of an extended lockdown.

Other stocks hit by the lockdown also rallied today: Kathmandu Holdings rose 4.5 percent to $1.17, Vista Group International gained 3.3 percent at $1.24 and Freightways advanced 3.1 percent to $6.96.

Smith said utility stocks were gaining as they were an obvious option for investors seeking long term yield.

Trustpower's majority owner Infratil rose 3.1 percent to $4.835, Meridian Energy gained 2.8 percent at $4.72, Chorus was up 2.3 percent to $7.69 and Mercury NZ climbed 2.1 percent to $4.88.

Shares in Genesis Energy and New Zealand Oil & Gas rose after recent studies increased expected reserves in the Kupe gas field off the coast of Taranaki.

Remapping of the fields, undertaken by their Australian joint-venture partner Beach Energy, resulted in a 23 percent increase to proven and probable reserves.

Genesis Energy gained 1.5 percent at $2.795 and NZ Oil & Gas rose 9.9 percent to 61 cents.

Refining NZ held at 67 cents after it reported a $186.3 million half-year loss and said it is planning to keep operating in a low volume mode while it continues its strategic review.

Australia and New Zealand Banking Group posted the day’s biggest fall, dropping 1 percent to $20.20.

The kiwi dollar was trading at 65.30 US cents at 5pm in Wellington, down from 65.38 cents at the New York close, and 65.29 cents on Friday evening local time, following the announcement of the lockdown extension.

The trade-weighted index was at 70.77 at 5pm, down from 70.94 on Friday evening. The kiwi traded at 90.99 Australian cents from 91.34 cents, 69.61 yen from 69.83 yen, 55.06 euro cents from 55.30 cents, 49.89 British pence from 50.02 pence, and 4.5322 Chinese yuan from 4.5394 yuan.

Tags: Market Close