Australia may be the biggest export market and destination for New Zealanders but the earnings season suggests it isn't such a lucky country for the nation's biggest companies in the face of a weakening economy and soaring currency.
New Zealand firms including Fletcher Building, the biggest on the NZX 50 Index, have cited dwindling returns in Australia in posting earnings that missed analyst estimates. While investors are pondering when the Reserve Bank of New Zealand will start raising interest rates, its Australian counterpart has lowered its growth forecasts, sees growing unemployment and is seen cutting rates.
"It's not a recession but it's difficult to grow off the same pace," said Paul Richardson, chief investment officer at BT Funds Management. "Industrial companies have had no real earnings per share growth - there has been quite a lot more hunkering down, with consumers putting their wallets away."
Fletcher Building was hit hard by the Australian government's surprise decision to dump a subsidy scheme on home insulation, a move it called "disastrous" for the industry. But it also faces substitution from cheaper imports of building products driven by an Australian dollar that is more valuable than the greenback, and a downturn in home building.
"Australia was already slowing at the start of the year, and there has been a pronounced decline in new residential construction over the past six months," chief executive Jonathan Ling said last week.