NZ sharemarket worried by inflation and rising interest rates

The New Zealand sharemarket made a small gain but it presently lacks conviction and direction as worries over inflation and rising interest rates persist.

Tuesday, May 16th 2023, 6:28PM

by BusinessDesk

The S&P/NZX 50 Index fell to a morning low of 11,878.97 before recovering in the afternoon to close at 11,945.87, up 8.26 points or 0.07%.

There were 63 gainers and 56 decliners over the whole market on a volume of 38.13 million share transactions worth $130.87m. Food price inflation climbed to 12.5% in April, up from 12.1% in March – the highest level since September 1989.

Food prices are set to make a sizeable contribution to second-quarter consumer price index inflation.

Westpac economists now expect the official cash rate (OCR) to peak at 6% by August, rather than the market consensus of 5.5%, because of a surge in migration numbers.

There was a net migration gain of 65,400 people in the March year, compared with a net outflow of 19,300 in the previous year. New migrants totalled a record 88,900 and 23,500 New Zealanders left home.

Westpac expects net migration will rise to an annual inflow of 100,000 people by the end of this year.

Matt Goodson, managing director of Salt Funds Management, said inflation was still a concern.

“What we are seeing is that goods price inflation has peaked with transportation costs starting to decline, but the real problem is that costs have spilled over into services and the labour markets, particularly wage inflation.

“A key focus for financial markets is how the government will relieve pressure on the cost of living in its Budget,” Goodson said. “It will likely be inflationary and make the Reserve Bank's job harder, forcing interest rates even higher.

“It’s a difficult situation for the market. There are no free lunches here,” he said.

The Reserve Bank is expected to increase the OCR 25 basis points to 5.5% when it delivers its latest monetary policy statement next Wednesday.

There was little movement amongst the leading stocks. Fisher and Paykel Healthcare was up 17c to $26.87; Fletcher Building gained 6c to $4.91; and South Port NZ gained 21c or 2.73% to $7.90.

The retirement sector was stronger. Summerset Group gained 8c to $8.26; Arvida Group increased 3c or 2.83% to $1.09; and Oceania Healthcare was also up 3c or 4.41% to 71c.

Goodson said there was some buying support for the retirement stocks and “I think some investors are trying to sniff out the bottom of the housing market. The retirement village companies are highly leveraged to the housing market.”

Other gainers were Ventia Services up 7c or 2.41% to $2.97; Steel & Tube increasing 2c or 1.85% to $1.10; Trade Window improving 1c or 2.7% to 38c; Allied Farmers adding 3c or 4.17% to 75c; and CDL Investments up 3c or 4% to 78c.

Auckland International Airport, up 2.5c to $8.83, continues to operate at 80-81% of pre-covid levels with 1.51m (1.87m in 2019) passengers moving through the terminals in March and 1.42m (1.76m) in April.

Manawa Energy, which sold its Trustpower retail business to Mercury last May for $467m, was down 8c to $4.90 after reporting net profit of $444.36m, up 271%, on revenue of $490.891m, down 59%, for the year ending March. Manawa is paying a final dividend of 8.5c a share on June 16.

Total operating earnings (Ebitdaf) were $140m, at the top end of the company’s guidance, and electricity generation was 1917 gigawatt hours, up 9% on the previous year.

Manawa’s pipeline of wind and solar developments has increased by more than 900 megawatts over the past 11 months. The company told the market that it was on track to double its generation by 2030.

Among other energy stocks, Vector was up 4c to $4.02; Meridian was down 6c to $5.42; and Mercury declined 4c to $6.37.

Hallenstein Glasson was down another 43c or 6.9% to $5.80; Mainfreight gave up 32c to $69.99; PGG Wrightson declined 8c or 1.82% to $4.31; Scales Corp shed 7c or 2.05% to $3.34; and T&G Global decreased 4c or 1.95% to $2.01.

Rakon fell 7c or 6.67% to 98c; Eroad shed 2c or 3.57% to 54c; Savor decreased 1.5c or 4.05% to 35.5c; and NZ Automotive Investments was down 2c or 7.69% to 24c.

KMD Brands, down 1c to $1.09, has arranged a three-and-a-half-year NZ$310m revolving facility consisting of A$240m and NZ$54m. The multi-currency facility is linked to KMD’s environmental, social and governance objectives.

TruScreen Group, unchanged at 3.2c, told the market that its optical-electrical technology has been included in China’s cervical cancer screening guideline by the Chinese Society of Colposcopy and Cervical Pathology.

Tags: Market Close