NZ shares fall as investors face up to inflation 'bogeyman'

New Zealand shares fell for a third consecutive session as international investors continue to sell risk assets in the expectation the US central bank will soon tighten monetary policy.

Tuesday, January 11th 2022, 6:47PM

by BusinessDesk

The S&P/NZX 50 Index fell 61 points, or half a percent, to 12,831.73. Turnover was $130.8 million.

It was another grim session for global markets overnight as US stocks took another fall,. The S&P 500 has declined on each of the five trading days in 2022 so far.

ANZ’s head of global economics, Brian Martin, said investors have been paring back risk assets as they now expect the US Federal Reserve to raise interest rates in March.

“Equity markets sold off across the board as inflation concerns and anxiety over future monetary tightening weighed,” he said.

Previous declines in the US market have been short-lived as investors have been willing to ‘buy the dip’, taking a bet that markets will move up in the long-term regardless of immediate challenges.

Martin said it will be important to see if buy-the-dip strategy in equities re-emerges, given the more uncertain economic backdrop and inflation forcing central banks to stop supporting asset prices.

Castle Point portfolio manager Stephen Bennie said inflation was a “financial villain” that could challenge the buoyancy of share markets.

“In a world where zero-interest rates have become the dominant metric for pricing asset classes, inflation threatens to break the code and force dramatic repricing,” he said

Bennie said current corporate earnings had taken a backseat to the possibility of large future earnings when interest rates are as low as they have been.

Travel booking software firm Serko led the index lower, falling 4.5% to $6.21. The company is currently operating at a net loss but hopes to become a key player in the global business travel market in the future.

Another growth-oriented software stock, Vista Group, fell 3.5% to $2.18, early-stage blockchain firm Trade Window was down 4.7% at $2.65, and payment platform Plexure dropped 1.9% to 52 cents.

The index’s largest stock, Fisher & Paykel Healthcare, declined half a percent to $31.95 and Spark NZ was down 0.7% at $4.44 – the two stocks make up 20% of the index.

Fast-food retailer Restaurant Brands had the index’s biggest gain, up 2.5% at $14.60, followed by Ebos Group, which rose 1.5% to $40.44.

The Warehouse Group bounced 1.4% to $3.60 after dropping almost 12% yesterday as it reported strong Christmas sales were not enough to offset rising costs and an otherwise weak half year.

The kiwi dollar was trading at 67.70 US cents at 3pm in Wellington, down from 67.77 cents yesterday as investors continued to shy away from riskier currencies.

“The kiwi is struggling a little this morning in the face of the generalised slump in global risk appetite overnight,” Martin said.

He said the recent rout in the currency was being blamed on “the usual suspects: inflation, tighter monetary policy and covid”.

Tags: Market Close