KEY POINTS:
The sharemarket top 50 benchmark index today fell to its lowest level since March 2006 as bearish market factors piled into a stack.
The NZSE-50 fell to 3377, 18 points below this year's low set on March 27, although in afternoon trade it recovered into positive territory.
The index, which understated the market fall because it included dividend payments, has dropped 21.6 per cent since early October.
UBS managing director Campbell Stuart said there was a confidence crisis.
"It you look at volumes today, it's just dried up."
Turnover was around a third of typical trading this morning.
"We suffer the sentiment that is attached to the markets globally and regionally."
World markets have been hit by the US subprime mortgage crisis and the related credit crunch, rocketing high oil prices, slumping house prices and diminishing household incomes.
Locally, the market has been affected by high interest rates, an overvalued currency, drought, and falling economic growth.
Around the world, high inflation was expected to linger for some time and that was coinciding with households experiencing asset price deflation - an unpalatable cocktail for central bankers to deal with.
Stuart said the local market needed relief on the interest rate front and oil prices coming off before it could escape the bear phase.
"Whether either of those things are going to happen in the immediate short term, we'll have to see.
"We are not looking at a particularly high growth environment in the next two or three years, so from an international perspective there are plenty of markets which are doing better."
A fall in the currency would be welcomed by export stocks but would probably result in more pain on the domestic front in the form of higher petrol prices.
Some companies have taken a pasting despite apparently trading well. No 3 stock Fletcher Building has halved in value since July as investors fret about the housing and construction market both here and in the US, where it has recently increased its exposure.
Unlike many firms, Fletcher has barely downgraded its profit guidance.
TrustPower today fell 5 per cent after it issued a warning saying the drought had affected generation capacity and would hit profits.
On Friday, Tourism Holdings said lower tourist numbers, both internationally and domestically would hurt profits. Other profit downgrades can be expected, brokers said.
Merger and acquisition activity has largely dried up, as the credit tap had been turned off to private equity firms. And many, such as those that had bought Yellow Pages and TV3 owner MediaWorks, were nursing major headaches.
Action is still imminent with No 2 stock Contact Energy, whose 51 per cent owner Origin Energy of Australia is the target of the attention of BG Group.
Also, a decision by the Court of Appeal is imminent over whether Australian supermarket chain Woolworths, or its New Zealand rival Foodstuffs, can launch takeover bids for The Warehouse.
Stuart said that activity was likely to re-emerge soon.
"There's no doubt some of these companies are trading at very cheap valuations relative to what we've seen in the past and where potentially they will be in the future."
One upside factor is the gross yield across the market was an attractive 9 per cent and some stocks were well into double digits.
Stuart said picking the market trough was tricky and investors that bought now had to take a "medium-term" view and opt for quality.
One manager of a boutique fund, who declined to be identified, said he had been a market bear throughout the credit crunch and had become more bearish last week after visiting China.
"I see so much inflation being exported from China, where it has previously been a source of deflation for so long."
He said the minimum wage had gone up there 27 per cent.
On the local scene, people were spending much the same in supermarkets but buying less. By the time people had paid for the basics they had little left and "I can't see where the relief will come from for that".
He said retail share investors had deserted the market in droves while institutional investors had been spooked by other things.
"This is the downside of the environment we are in at the moment, where everyone is concerned with quarterly performance and the problem with quarterly performance is that it is more compatible with punting than investing."
He said some absolute return fund managers - those who pick winners rather than track an index - should be loading up on the New Zealand market.
He described Fletcher Building as "massively oversold" and many other stocks that looked genuinely cheap on a two- or three-year view.
Those who could lock up their portfolio and go away for about three years would be fine, he said, and large funds such as the Cullen Fund, that could take a long-term view, should be mopping up cheap stocks.
But for the likes of smaller fund managers, judged on quarterly performance, it was a worrying time on how to time their uncommitted funds to the market.
- NZPA
