KEY POINTS:
Wednesday's trading was a wild ride for local investors despite the fact that the damage to the NZX-50 was, ultimately, a mild 1.5 per cent drop.
But let's not forget it was already correcting and had shed nearly 3 per cent in the previous three weeks.
The fallout from the Chinese slump knocked a dramatic 3.3 per cent off the NZX-50 in the first hour but, by the day's end, it was clear the overseas action had really just exaggerated existing trends.
Given its weighting - about 18 per cent of the NZX-50 - a bad day for Telecom is usually a bad day for the market. The telco had a 7c fall but, in the post-unbundling world, that's hardly a big one.
Telecom and fellow heavyweight Fletcher Building had been riding high since the start of the year, tempting retail investors to take profits. In fact, profit-taking was well under way. By Wednesday, Fletcher Building had already shed 7c since February 5 and Telecom had dropped 22c since February 15.
SkyCity had the misfortune to deliver a rough result on a rougher day and got clobbered for it. But the gambling stock had already flagged its bad run at the high rollers' table to the market and would probably have got off lightly were it not for the general panic of the day. It had already shed 42c since February 13.
The net effect of this month's slide on big stocks was that by Tuesday evening the NZX-50 had already undergone a far less newsworthy correction of 2.66 per cent since February 7. It fell fractionally on most days. So the potential for further falls locally must surely remain - whichever way the butterfly's wings flap on the other side of the world.
Wednesday Winners
There were some Big Wednesday winners too. The market's hottest stock right now is Air NZ, which shrugged off an 11c drop in the morning to rise 22c and finish 11c up at $2.34. There is talk that some investors had been looking to short sell the stock (punt on it going down) after its post-result high on Tuesday. They were sent scampering for stock to cover losses as it broke back through the gain line yesterday afternoon.
Air NZ did ease yesterday to close down 9c at $2.25.
Fisher & Paykel Healthcare rose 6c on Wednesday. Possibly a play by investors picking up on the damage the Chinese crisis was inflicting on the kiwi dollar. The stock rose again yesterday, closing up 2c at $3.92.
Guinness Peat Group was another to gain. It took a post-result hit on Tuesday shedding 13c after its Coats threads business disappointed the market. It bounced back 2c on Wednesday as the company disclosed more detail about some one-off costs allaying investor fears.
GPG clawed back another 3c yesterday to close at $2.41.
Long Wait
The Warehouse took an 8c hit on Wednesday but was headed for a fall anyway on news that the Commerce Commission had again delayed its ruling on takeover applications by Foodstuffs and Woolworths. Originally aiming for a late January decision, it was delayed until late February. The latest delay pushes the deadline to late March.
It's clearly going to be a few more months before a takeover is completed.
Aside from the obvious opportunity cost for those who'd rather have their cash earning interest or invested elsewhere, the delays raise the prospect the commission has found some serious issues to work through. It would be bad news for the share price if one or other of the prospective bidders was knocked out or significantly hindered. The market is expecting nothing less than a high noon showdown between the two and has been greedily anticipating a lucrative bidding war.
The commission is in an unenviable position and is no doubt wading through some high-powered legal arguments from both sides as they seek to make their case. Warehouse shares rose 2c yesterday to close at $6.99.
Brakes Go On
As noted last week, Mainfreight delivered returns of about 140 per cent in 2006 on the back of some pretty impressive global expansion.
But, even excluding Wednesday's meltdown, the stock hasn't exactly been a star performer this year. Its shares have sunk from $8.07 on February 19 to yesterday's close of $7.10.
It could be that it is a victim of its own success, writes Marcus Curley at Goldman Sachs JBWere. Its nine-month result last week was disappointing with a core profit of $30.1 million coming in about 5 per cent below expectations.
The problem is that its exceptional ebitda growth has been difficult to maintain, slowing from more than 35 per cent in the second quarter to a 11 per cent in the third quarter.
Curley has subsequently decreased his full-year profit forecasts for 2007 and 2008 by 5 per cent and by 3 per cent for 2009.
That's in expectation of lower ebitda margins in all of its a key markets. In New Zealand, it faces higher operating costs from its new Auckland super site. In Australia, it faces maturing branch profitability and, in the United States, it faces costs from new depot expansion.
The end result of that is Mainfreight's recent valuation has been stretched. Curley has decreased his discounted cashflow valuation to $6.60 per share (from $7.05).
He maintains his "hold" recommendation because the possibility of the company making an earnings-boosting acquisition remains strong given it has said it is actively reviewing opportunities.
The Computer Did It
No really, and it ate my homework. One of the lamest excuses for the panicked US reaction to the Chinese market slump was an old chestnut, the poor workman excuse: blame the tools.
American brokers are determined to resist computerisation of their stock markets, which remain one of the last bastions of shouting, chalk boards and funny coloured jackets.
So it wasn't surprising that they blame computers for the chaos on Tuesday (New York time).
Brokers have been feeding two versions of the excuse to the US media.
In one, a computer glitch on the Dow Jones created a backlog of automated trades which, when the overheated machines finally caught up, caused a 117-point drop to beprocessed in less than a minute. That looked extreme and panicked investors. But the glitch, however real, can't hide the fact that these were extremely trigger-happy investors.
The other piece of technophobia doing the rounds is that pre-programmed trading exacerbated losses late in the day.
In other words, computers were pre-set to sell once certain loss points were hit. Such computer programs are fraught with flaws in a crash-type environment that requires understanding of context.
But again, you can hardly blame the machines, it is humans who write the programs.
Acquisitive Aussies With Money To Burn
The ASX was certainly hit harder than the NZX by the China slump. It fell 2.7 per cent.
Its not just that Kiwi investors are a more heroic and resolute bunch, despite what we'd like to think.
The Aussie market has far more exposure to the Chinese economy through its hard commodity stocks. Mega-miner BHP Billiton, for example, shed 6 per cent.
But the Australian market is about to get another cash injection which should ensure there are still plenty of Aussie sharks looking for tasty acquisitions on this side of the Tasman in the coming year, says Fisher Funds Australia equities manager Frank Jasper.
As if the compulsory super scheme wasn't doing enough to bolster big funds across the ditch, the federal Government is offering Australians a one-off incentive to boost their superannuation savings by letting them invest up to $1 million before June 30, completely tax free.
The incentive is so good that people are borrowing money to invest in their super schemes, says Jasper "By the time you offset the borrowing cost against the tax benefit it actually pays you to do that."
The new scheme is likely to push an extra three or four billion into the market by the middle of the year.
That's just the expected injection for listed equities, says Jasper.
Asset hungry private equity funds will also be getting more cash thanks to the legislation. And it will all be on top of the $12 billion worth of normal flow from superannuation and the $5 billion from the future fund.
"The cashflows going into the Aussie equity markets are just huge," Jasper says. "And that does end up flowing into the NZ market."
ASX Results Season (Part 2)
Last week Stock Takes ran an item noting that the ASX reporting season had left the NZX for dust. It is worth updating, given the Aussie results haven't been so flash since then, says Jasper.
While it's still true that plenty of companies have exceeded expectations, there have also been more than usual coming in below expectations. In fact about 34 per cent of ASX companies have disappointed. So it has been a volatile season with fewer results in line with predictions. The big theme has been the cost side of the equation hitting results - something that is often harder for analysts to predict.
