Expected selloff picked to hit stock market hard

The New Zealand stock market is expected to tumble today as investors sell Telecom shares in the wake of the Government's proposed telecommunications changes.

The shares yesterday fell as much as 10 cents ahead of the announcement to $5.55 - a 2 per cent fall. But the market closed before local investors could trade.

In Australia, the shares closed down A33c to A$4.43 - a near 7 per cent decline - wiping around $760 million off Telecom's market value, previously $11 billion.

Investors will today not only sell Telecom shares but may also bale out of assets such as airports and energy companies amid fears that they too could be hit by further regulation. As Telecom represents about a quarter of the stockmarket, the benchmark indices should also take a big hit.

"This is going to smack the New Zealand market," said one fund manager. "The question is whether overseas investors will take their money out of Telecom and put it back in the market or say is it just too hard."

Fund managers said the extra competition in telecommunications may help New Zealand as a whole. But the country's reputation as an investment destination may suffer as Telecom is the most widely held New Zealand stock offshore.

They said such moves had been expected, but the Government had come out with the news much quicker than anticipated.

BT Fund Management's Paul Richardson said: "The Government really has no recourse but to follow the status quo of global regulation. This is the typical position taken globally."

He said growth in information technology services could increase. In the long run, Telecom could also benefit from increased competition.

"If they are a good enough company they could get good growth even in this environment."

Investors said it was too early to tell how much of a hit Telecom's profits would take.

They highlighted local loop unbundling, boosting upload speeds, the provision of so-called naked DSL and the suggestion that the Government could fund competing networks as the biggest threats.

"This is a massive negative for their business," said Tyndall Investment Management's James Lindsay.

Plans requiring Telecom to disclose its wholesale division's financial statements would give competitors valuable information about the business. The threat of structural separation would also hurt.