KEY POINTS:
The New Zealand sharemarket plumbed a 27-month low on sparse trade yesterday as investors nervously eyed a formidable bank of economic storm clouds.
Following a mixed session on Wall St, the local market opened weaker then lurched lower after the Australian market began its session on the back foot.
Early in the day, the benchmark NZX-50 index gave up 29 points, or 0.84 per cent, to trade as low as 3377.47, its lowest point since March 2006 and well below its previous year low of 3395.86 hit in March, although ASB Securities' Stephen Wright noted the losses were on remarkably low turnover.
"This is like Christmas, that New Year period. It's very very quiet in our market with very little selling."
However, like the ASX, the market recovered over the course of the afternoon to close just 1.73 points, or 0.05 per cent, down for the day at 3404.57.
Among factors contributing to the gloomy sentiment are the continued influence of the US sub-prime mortgage crisis, high oil prices and interest rates, low economic growth, slumping house prices and falling disposable income.
One local fund manager said many investors were "very nervous" about the pending results season after a series of earnings downgrades.
He noted a string of downgrades for Australian media stocks which "have implications for New Zealand".
The fund manager believed there was more market woe to come, a view echoed by a local broker.
"I don't think we're going to get out of the woods in a hurry. The fundamentals don't look good and sentiment is just negative across all sorts of things. We're going to test the downside a bit more I suspect."
ANZ chief economist Cameron Bagrie said the market's low yesterday was "pretty conclusive evidence in terms of where the economy stands".
"It's a very difficult environment for earnings, so to me it's not surprising to see the New Zealand equity market under pressure, and of course you've got the ripple effect of what's happening around the globe at present and that's a pretty nasty cocktail."
Putting a positive slant on things, Bagrie believed the market's current difficulties were "a corrective phase" after five or six years of double digit returns and part of a rebalancing of the economy to favour earnings- and export-oriented businesses rather than domestic cyclicals.
That said he believed the bottom of the economic cycle had yet to be reached.
"I don't think the equity markets will turn back up until you see economic prospects improve."
