Bargain hunters drive NZ shares higher

New Zealand's sharemarket rallied in earnest on Tuesday as investors concluded that equities had been oversold and rushed to buy at deflated valuations.

Tuesday, February 1st 2022, 6:33PM

by BusinessDesk

The S&P/NZX 50 Index rose 170 points, or 1.4%, to 12,058.94. Turnover was $156.3 million.

ASB economist Nathaniel Keall said analysts had struggled to pin a narrative on the sudden shift in the mood but “a spot of bargain hunting after last week’s tumbles” was one suggestion.

Investment bank JP Morgan told clients the equity market sell-off had been “overdone” and reiterated their call to “buy the dip”.

“The stock market is not only in correction, it is already in bear market territory without a recession in sight,” JP analysts wrote in a note.

While the chair of the Federal Reserve’s hawkish press conference had prompted a sell-off of risk assets, JP analysts said inflation data may improve and fewer hikes might ultimately be delivered, despite the hawkish signals from the US Federal Reserve last week.

A research note from local fund manager, Harbour Asset Management, said long-term investors should see the cheaper share prices as a chance to buy.

“Within our equity growth portfolios, we have taken the opportunity to increase exposure to companies caught up in the sell-off, some of which are trading at covid levels despite delivering double-digit earnings growth in the ensuing period,” it said.

Synlait Milk led the bounce with a 6% leap to $3.34 as it began to recover the almost 10% it has lost this year.

Fruit exporter Scales was up 5.8% at $5.09 and Fisher & Paykel Healthcare rose 4.5% to $29 – both likely benefitting from the weakening kiwi dollar.

The currency has dropped to a 15-month low, trading at 65.70 US cents (NZ$1) today, as investors reacted to the coming rate hikes by selling shares and buying US dollars.

Imre Speizer, Westpac’s head of NZ strategy, said the NZ dollar was at risk of falling as low as 64 US cents. This would be a net positive for businesses that sell products in US dollars and report a profit in NZ dollars.

It wasn’t just exporters recording share price gains, most sectors had stocks making meaningful jumps.

Meridian Energy climbed 3.2% to $4.50, Arvida Group rose 3% to $1.75, Sky Network Television was up 2.9% at $2.48, and Heartland Group Holdings advanced 2.5% to $2.42.

Shares in Skycity Entertainment Group were up 2.6%, at $2.80, despite Jarden analysts lowering their 12-month target price to $3.35.

Jarden’s director of equity research Adrian Allbon said the recent purchase of a $40m online gaming company wasn’t ideal timing with escalating debt levels and covid closures.

The casino operator will report its half-year earnings results on Feb 14, with covid restrictions likely to result in a net loss of $24m in the six months ended December.

Shares in NZ King Salmon Investments tumbled 11.6% to $1.07 after it told investors an abnormally high number of fish were dying due to warm seawater temperatures.

The high mortality rate will “seriously impact” earnings both this year and next as less fish will be harvested.

The company estimates earnings in the 2022 financial year will be cut almost in half; from approximately $11m to roughly $7m.

“The situation continues to unfold, and we are deploying best practice measures to counter the heat of summer and other contributing stressors,” the company said.

“This outcome is particularly disappointing for our dedicated teams who closely monitor and care for our fish because our improved farming model was showing good results”.

Tags: Market Close