Labour's big budget boosts sharemarket

NZ shares rose as the government revealed a budget that will send more fiscal stimulus flowing into an already improving economy via benefit increases and infrastructure investment.

Thursday, May 20th 2021, 6:31PM

by BusinessDesk

The S&P/NZX 50 Index rose 155.67 points, or 1.3%, to 12,437.17. Within the index, 21 stocks fell, 27 rose and two were unchanged. The index is still down 7% year-to-date.

The Labour party’s newest budget cast an encouraging light on the economy with a pledge to spend an additional $8 billion to $12b on infrastructure and an extra $440 million per year on new benefits.

“There is no doubt in our minds that the stimulus provided will provide further impetus to the economy in the immediate future,” BNZ economists said in a note.

“Beneficiaries have a very high marginal propensity to consume so this money will flow through to the communities in which they live. And, generally, investment activity will have positive direct and indirect impacts on the economy”.

This fiscal stimulus was accompanied by Treasury now predicting the economy will grow 3.2% in the next 12 months, with that rate increasing through to 2023.

A broad cross-section of shares moved higher, after weeks of gradual decline, as investors welcomed the improved outlook and extra fiscal stimulus.

Synlait Milk led the market higher, jumping 6.3% to $3.06 after a period of sustained weakness. The milk processor’s biggest customer, A2 Milk moved up 2.9% to $5.66 – its first gain since its earnings downgrade last week.

Travel stocks got a lift, Air New Zealand climbed 3% to $1.70 and Auckland International Airport was up 2.9% at $7.55, despite the company’s chief executive announcing his resignation.

Other stocks which are broadly linked to the economy rose, such as Meridian Energy which climbed 2.1% to $5.32 and Spark NZ was up 1.7% at $4.50. Both were among the most heavily traded stocks on the day.

Plexure shares plunged 14.5% to 65 cents after the company reported an $8 million loss as operating costs climbed even as the company struggles to hire new staff.

Revenue from existing customers lifted 15% to $29.2m for the year ended March 31 and the company outperformed its underlying earnings guidance. The company attributed the headline loss to increased investment in people to help scale the business.

Automated food processing systems firm MHM Automation saw its shares climb 3.2% to 64 cents after it gave guidance saying earnings would be at least $3.5m, up from $2.4m last year.

One surprise in the budget was the small downgrade to the government’s bond programme.

Market participants expected a $20b reduction over the next four fiscal years but the budget offered only a $10b downgrade and left next year’s programme unchanged.

The higher rate of issuance is likely to further steepen the yield curve as long-term interest rates creep higher and short-term rates remain low.

The kiwi dollar rose a little after the budget announcement but was still trading lower at 71.75 US cents at 3pm in Wellington, down from 72.35 cents yesterday.

The trade-weighted index was at 74.70 at 3pm, from 75.15 yesterday. The kiwi traded at 92.71 Australian cents from 92.96 cents, 78.29 yen from 78.89 yen, 58.90 euro cents from 59.20 cents, 50.83 British pence from 51.00 pence, and 4.6187 Chinese yuan from 4.6499 yuan.

Tags: Market Close