KEY POINTS:
The New Zealand sharemarket is officially a bear market after fallout from the near collapse of US investment bank Bear Stearns knocked more than 2 per cent off the value of the benchmark index.
The NZX-50 dropped 2.08 per cent yesterday, taking its losses since last October's peak beyond 20 per cent.
A bear market is typically defined by a fall of 20 per cent or more from a 12-month high.
The ASX yesterday fell 2.3 per cent but the real damage was done on Asian markets where Japan's Nikkei shed 3.7 per cent or 454.09 points to end at 11,787.51, its lowest finish since August 2005, and Hong Kong's Hang Seng was down 5.2 per cent at 21,084.61 points.
Simon Botherway, executive chairman Brook Asset Management, said Bear Stearns had been a major meltdown.
"I suppose the fear is that this is the first of many such fallouts - and it's not altogether clear whether or not there is going to be someone there to pick up the slack every time," he said.
There was a question mark over other investment banking models.
"It's nice to see that things are being crunched together in a very timely manner and that the Fed is part of the solution."
Forsyth Barr analyst Guy Hallwright said there was not a huge amount of direct impact in New Zealand but that the Bear Stearns bailout reinforced how much difficulty the financials might be in.
"Trading activity has nothing to do with Bear Stearns but it makes people nervous about exposures," he said. "Bear Stearns is another one of several entities that have gotten into trouble with the credit crisis and there are probably more to go."
One bank economist who asked not to be named said the global credit situation was extremely serious, with the US probably already in recession.
"If the financial markets situation doesn't ease pretty soon it'll be very hard for us to avoid a recession and this should be seen in the context that it may be very hard for the global economy not to slow quite a bit as well," he said.
People were borrowing overseas through the banking system to fund their lifestyles.
"What is happening is there is less of this money to go around and it is becoming more expensive to get that money."
During the next six to 12 months banks would increasingly pass on the higher costs of credit and availability would be reduced, he said.
Hamilton, Hindin Greene broker Grant Williamson said US credit issues had spread to Europe and to some degree Australia, and were making investors very nervous.
Trading volumes on the NZX were very low, Williamson said.
"So there's not a lot of buyers in the market at the moment and any sellers are having to accept much lower prices than what we've seen recently."
The fundamentals of most stocks were extremely good but in times like this investors probably ran a little scared and sold at prices considered irrational during normal conditions, he added.
"Most long-term investors that have been in the market a long time might make some small adjustments in periods like this but overall most of them would have experienced these sorts of conditions before and just ride through the tough times."
Investors should examine asset allocations but there was no reason to panic, while some bargain-hunters had unsuccessfully tried to pick the bottom of the market during the past month or so, he added.
"Once again experienced investors will just accumulate on markets like this rather than just putting it all in at once."
The US Fed could find a way out of the current situation, Williamson said.
"I think between three to six months the US will hopefully be getting over these credit issue," he said.
Ian Waddell, director at Wellington boutique stockbroker Waddell Johnston McCarthy, said events in the US had an major impact on confidence in New Zealand.
"The danger is that probably in the short term we should be forgetting about inflation and cutting interest rates to ensure that the household balance sheets of New Zealand remain intact." The underlying world economies and commodity prices were still strong with demand for infrastructure spending in the Middle East, Iraq, Eastern Europe and China, plus gross domestic product growth in India.
"You've effectively got five real pockets of the world where there's extraordinary growth going on and that's still the case and that's not going to change because a lot of those projects are so medium to long term."
People should review portfolios to ensure they were investing in good long-term companies, while cheaper stocks could provide opportunities.
"As [billionaire investor] Warren Buffett always says, when others are fearful be greedy and when the others are greedy be fearful."
NZ ECONOMY 'HOLDING UP WELL' - PM
The Government is not planning any policy response to the Bank of New Zealand's warning that the economy is at risk of entering a recession, says Prime Minister Helen Clark.
"We're obviously following the international situation closely which is driving a lot of speculation about economies in general, but basically the New Zealand economy has held up pretty well," she said yesterday.
On Friday, BNZ economist Stephen Toplis predicted New Zealand would go into a recession in the second half of next year.
"A lot of New Zealanders are in complete denial."
Clark said drought was a factor that had to be considered this year, but high dairy prices were offsetting the impact on production.
- NZPA
