KEY POINTS:
Top stock Telecom plummeted to a 15-year low yesterday as foreign investors pulled their money out on the back of another poor day's trading on Wall St.
Telecom shed 11c to close at $3.28 - its lowest close since March 1993. The NZX-50 closed down 2.2 per cent at 3094. It is now well and truly in bear territory having shed 28 per cent since last October's peak and 13 in the past month alone.
First NZ Capital analyst Greg Main said it was likely to be foreign institutional investors that were selling out rather than smaller mum and dad Kiwi shareholders.
Main said Telecom was often seen as a barometer for how the overseas markets perceived New Zealand and he believed the sell-off could be linked to concerns about New Zealand's weakening dollar. "Nothing has changed from a fundamental perspective of the company, it's just investors' views."
Telecom has shed 16 per cent of its market value in the past month.
Hamilton Hindin Greene client adviser James Smalley said Telecom's high level of liquidity meant it was one of the key New Zealand stocks held by foreign investors.
Part of the reason Telecom had lost ground was because foreign investors perceived New Zealand's economy was taking a turn for the worse and they wanted to get out of New Zealand dollar stocks before the currency weakened further, he said.
Smalley said tougher times often saw investors repatriate their money into vehicles closer to home.
He said it was difficult to know if Telecom's share price would fall further and believed in the short-term the price was dependent on the lead from overseas markets.
"But ultimately a company's share price should be driven by its prospects and earnings."
While Telecom is not predicted to make profit gains in the next few years Smalley said it was also unlikely to see huge profit drops unlike those in the retail sector which meant its dividend yield was likely to continue to hold up in the face of tougher times.
"That could be considered to be on the plus side because it means it won't be coming out with any nasty surprises."
But Brook Asset Management senior portfolio manager Paul Glass said it was not surprising to see Telecom's share price continue to fall given its poor earnings outlook.
"I can't understand why it's trading above $3. It should only be trading at a premium to its dividend."
Glass believed Telecom was likely to bottom out at around $2.90 and said it was difficult to see how the company could turn around its long-term earnings decline in a market where it had gone from being the dominant player in a monopoly position to an open market.
He said yesterday's sharemarket drop was not just a reflection of what was happening in the US markets but reflected growing concern about New Zealand's economy.
Market commentator Arthur Lim of investment banking firm Giffney and Jones said investors lacked conviction that the market was going to turn around and were looking for a catalyst to signal that things were on the up again.
"Our market is really following the markets overseas and reflecting the concerns about economic conditions."
Lim said a catalyst could come in the form of a change in the Reserve Bank's monetary policy or the re-emergence of key corporate activity.
Fletcher Building was also down 11c or 1.74 per cent to $6.21 bringing its price back to levels last seen in 2005 - a drop more in line with the rest of the market.
While Contact Energy also sunk lower to close down 17c or 2.16 per cent on $7.71.
The NZX-50 was down 68.968 points or 2.23 per cent to close on 3094.418.
