Goldman fallout hits NZ shares

Photo / Richard Robinson

Shares and commodities fell across the board yesterday as markets digested news of US fraud charges against investment bank Goldman Sachs Group and prepared for more fallout from Wall St.

The NZX-50 index closed down 29.11 points, or 0.89 per cent, on 3282.20 - its biggest one day fall since early January when the markets reeled on news of Greece's debt problems.

Oil prices also sank to a three-week low of below US$82 a barrel.

The New Zealand dollar closed up slightly on US70.86c at 5pm from US70.76c at 8am in anticipation of inflation data due out today which could signal an interest rate increase.

Forsyth Barr institutional broker David Price said while the New Zealand market was not directly affected by Saturday's announcement that the United States Securities and Exchange Commission (SEC) would sue Goldmans it was being hit by a knock-on from others. "If markets fall offshore we feel the effects."

Price said markets had had a strong run in the past 18 months and many investors were looking for an opportunity to take some money off the table.

Yesterday was the third down day in a row in the New Zealand market after news of a profit downgrade from top stock Telecom filtered out into the market last Wednesday.

Hamilton Hindin Greene's Grant Williamson said it was likely the New Zealand market would continue to feel the brunt of international uncertainty over the next few days.

"But I don't think it is going to have a long-term effect."

Williamson said the US reporting season had made an okay start but investors were looking for more evidence that company fundamentals were improving in the wake of the economic crisis.

Across the region Asian stocks declined the most in two months.

The MSCI Asia Pacific Index dived 1.8 per cent to 125.91 as of 1pm in Tokyo, the most since February 19 and Standard & Poor's 500 Index futures lost 0.4 per cent.

China's Shanghai Composite Index slid 2.7 per cent after its government told banks to stop loans for third-home purchases.

China's latest move to cool its property market comes after prices gained a record 11.7 per cent in March.

Oil prices dropped 1.5 per cent in New York, while copper slumped 2.7 per cent in Shanghai.

Goldman Sachs shares plummeted 13 per cent on April 16 after the SEC claimed the most-profitable Wall St firm in history misstated key facts about collateralised debt obligations tied to sub-prime mortgages.

"The Goldman news, in isolation, undermines credibility in the financial system," said Tim Schroeders, who helps manage about $1.5 billion at Pengana Capital in Melbourne.

"It also creates uncertainty as to whether this is a one-off action, or the first of many that results in greater scrutiny regarding the integrity of US financial institutions."

Australia's S&P/ASX200 index fell 1.4 per cent, Japan's Nikkei 225 Stock Average sank 1.9 per cent, Taiwan's Taiex index dropped 2.1 per cent, South Korea's Kospi index dropped 1.7 per cent and Hong Kong's Hang Seng Index lost 1.7 per cent.

British Prime Minister Gordon Brown called for the Financial Services Authority to start an inquiry into Goldman Sachs.

Brown said he was shocked at the "moral bankruptcy" indicated in the suit filed against the bank.

Imre Speizer, a market strategist at Westpac, said Goldman's status as a leader among US investment banks made the probe more significant than scrutiny of a smaller firm.

"And with the prospects of further probes, that may be damping risk appetite," Speizer said.