Asian markets a sea of red - NZ no exception

Coronavirus fears continue to grip investors. Photo / AP

Asian equity markets are a sea of red and New Zealand is no exception as coronavirus fears continue to grip investors.

The S&P/NZX-50 Index was down 2.1 per cent at 11,193.58 at 2pm in Wellington, Japan's Topix was down 2.7 per cent and Australia's S&P/ASX 200 shed 3.3 per cent. The Asian markets tracked Wall Street lower, where all three major indices dropped more than 4 per cent.

"We are seeing selling across the board, with exporters at the top of the list," said Grant Davies, an investment adviser at Hamilton Hindin Greene.

Among exporters, Skellerup Holdings was recently down 6.6 per cent at $1.97 while SkyCity Entertainment Group, which has exposure to the tourism sector, dropped 6.2 per cent to $3.16.

Earlier this month, Skellerup chief executive David Mair told BusinessDesk he was "looking hard" to acquire a manufacturing business in the US to side-step increased costs from tariffs imposed on imports from China.

Power companies were also under pressure. Davies said that was partly due to uncertainty around the future of Rio Tinto's Tiwai Point aluminium smelter. The smelter closure, or any reduction in capacity, would depress wholesale power prices, potentially for years.

Contact Energy was down 1.8 per cent at $6.73, Genesis Energy dropped 4.1 per cent to $2.955, Meridian Energy was down 1.4 per cent at $4.635, while Mercury NZ shed 1.6 per cent at $4.74. Meridian is the major supplier to the smelter.

Davies noted, however, that at some point bargain hunters will move in seeking cheap stocks.

"There will be a time when you step back and look at where interest rates are, in particular as the chances of a rate cut grow every minute," he said.

The two-year swap rate was recently down 8 basis points at a bid price of 0.8553 per cent, the lowest level since mid-October. The 10-year swap was down 5 basis points at 1.200.

Kiwibank senior portfolio manager Ross Weston said New Zealand swaps were moving in tandem with global yields, which fell as investors upped the ante on the US Federal Reserve having to cut rates sooner rather than later if covid-19 takes hold in the US.

Domestically, money markets have also shifted and investors now see a 30 per cent chance of a rate cut in March. A rate cut is fully priced for June.

Weston noted that ANZ Bank had put out a note saying the odds of a rate cut were "rising rapidly." He said the situation would continue to evolve at "bewildering speed."

Against a backdrop of lower rates, Davies said investors would eventually "want to take a step back and look at some of the results."

He pointed to A2 Milk, which yesterday reported a 21.1 per cent jump in first-half net profit and said the scale of its infant nutrition business meant it was now looking at additional manufacturing.

According to Davies, every analyst who covers the stock raised their target price today. A2 was last down 1.8 per cent at $16.13.

Scales Corp was another example, he said. Earlier this week, Scales said underlying net profit for calendar 2019 was $36.4 million, up 2 per cent from the previous year. Scales was recently down 3.9 per cent at $4.18.

"These are companies that are heavily exposed to China," he said.

For now, however, investors are voting with their feet.