Equity rally stalls as caution returns

New Zealand shares snapped an 11-day streak of gains as investors took some risk off the table due to fading hopes for fiscal stimulus in the United States and growing covid-19 infections in Europe.

Thursday, October 15th 2020, 6:11PM

by BusinessDesk

The S&P/NZX 50 Index fell 56.88 points, or 0.5 percent, to 12,486.73. Within the index, 24 stocks fell, 16 rose and 10 were unchanged. Turnover was $164.5 million.

A return to caution in global markets ended the NZX 50’s near-record run of 11 days of consecutive gains as wary investors sold down positions in some stocks.

A new covid outbreak in Europe is weighing down sentiment, but the catalyst for selling was the US treasury secretary saying fiscal stimulus is unlikely before the November election.

This is despite both political parties, the US president, and the International Monetary Fund, all calling for more fiscal stimulus.

“What we’ve seen in global markets over the past 24 hours, is that profit taking has kicked back in,” said Sam Trethewey, a portfolio manager at Milford Asset Management.

“It's not helpful that the second wave [of the pandemic] is proving to be continuing to grow.”

A2 Milk Company led the market lower, falling 3.1 percent to $15.75 as investors continued to consider whether the earnings downgrade that resulted in the stock sliding 20 percent was fair.

“The stock is still trading with a fair bit of volatility day to day as people form their view,” said Trethewey.

Fisher & Paykel Healthcare fell 2.5 percent to $34.86. As one of the strongest performers throughout the covid-crisis it is first in line for profit-taking.

Ryman Healthcare fell 1.7 percent to $14.85, but a broker upgrade for Summerset Group Holdings gave a boost to some other retirement village stocks.

Oceania Healthcare posted the day’s biggest gain, rising 6.9 percent to $1.39 and Summerset advanced 3 percent to $10.30.

“Strong housing market data is giving a lot of confidence to the sector,” said Trethewey.

Ryman may be losing ground as it is the more expensive of the listed operators, and with operations in the state of Victoria it is less leveraged to the NZ market.

Air New Zealand shares were unchanged at $1.51, tomorrow the company will operate its first flight as part of the safe travel zone with New South Wales.

“It’s a small step in the return of normal service, but it is not a game changer,” said Trethewey.

Mainfreight continued to gain after reporting increased market share, revenue, and profit in a trading update yesterday. Shares in the logistics firm rose 1.5 percent to $52.05, in part due to strong performance of the Australian economy.

Reserve Bank of Australia governor, Philip Lowe, gave a dovish speech paving the way for further monetary policy easing, either in the form of bond buying or an interest rate cut.

The kiwi dollar stepped up against the Australian currency following his remarks, climbing from 92.89 Australian cents to 93.17 cents, and up from 92.86 cents at 5pm yesterday.

The kiwi dollar was trading at 66.45 US cents at 5pm in Wellington, down from 66.60 cents yesterday as the more cautious mood put some downward pressure on the kiwi.

The trade-weighted index was at 71.40 at 5pm, from 71.55 yesterday. The kiwi traded at 69.95 yen from 70.22 yen, 56.55 euro cents from 56.70 cents, 51.06 British pence from 51.48 pence, and 4.4681 Chinese yuan from 4.4882 yuan.

Tags: Market Close