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The New Zealand dollar and stock exchange fell sharply again yesterday as cash-hungry US hedge funds sold out of the local market.
The NZSX-50 index shed another 1.5 per cent, sinking to its lowest point since December. It ended the day down 61.2 at 4004.45.
The dollar dropped 1.55c, closing at US71.65c. It has now shed 11 per cent in just two weeks.
Hamilton, Hindin, Greene broker James Smalley said yesterday's big fall came as no surprise after another fall on the US markets.
American stockmarkets yesterday also lost more than 1.5 per cent as investor optimism faded after a fall in consumer spending and reports of trading problems for a US$1.5 billion investment fund.
Overnight, the US markets fell again and by 7.25am this morning the Dow Jones industrial average was down 85.43 points, or 0.66 percent, at 12,943.49.
The Standard & Poor's 500 Index was down 11.66 points, or 0.82 percent, at 1,414.88. The Nasdaq Composite Index was down 20.53 points, or 0.82 percent, at 2,478.59.
Smalley said the hit taken by the New Zealand market could be linked to US hedge funds being forced to sell good assets to return money to lenders and investors.
These funds would be unable to quit investments in the risky sub-prime side of their portfolios.
"The volumes that we're seeing today would definitely indicate the presence of foreign institutions selling on our markets," he said.
Losses on the New Zealand market were across the board, although leading stock Telecom held up relatively well, closing down 2c at $4.27.
Smalley said cashflow from dividends and the expected payout from the proceeds of the Yellow Pages sale had limited losses on Telecom shares.
ABN Amro Craigs broker Bryon Burke said the combination of the falling dollar and uncertainty had led to overseas investors repatriating money back to home exchanges.
"Because such a large portion of New Zealand equities is owned by overseas investors, their thinking does tend to dominate the direction of our market quite a bit really," said Burke.
But he said stocks that had been beaten up by the high dollar, including Fisher & Paykel Healthcare, were finding some interest.
Healthcare was down 1c to $3.42 on $4 million worth of shares.
The New Zealand market fared better than Australia's ASX - which shed 3 per cent - and Hong Kong which slipped 2.87 per cent. London's FTSE 100 was down 1 per cent shortly after opening last night.
The New Zealand dollar followed the sharemarkets down, shedding 1.5 cents to end at US71.65c.
It has now plunged 12 per cent in three weeks in one of the biggest falls since 1985.
The kiwi also fell against the Australian dollar, to A86.65c from A87.24c and to 84.01 from 86.33.
Royal Bank of Canada currency strategist Sue Trinh said currencies across the board were being driven down by a very low tolerance for risk because of the contagion-effect from the US sub-prime market defaults.
Trinh said the New Zealand dollar was "down on it's knees" after yesterdays fall.
She said the Kiwi was especially vulnerable because recent rises were driven by investors' "massive risk appetite".
She said negative sentiment from equity markets was flowing over into the currency markets, and economic news had been sidelined unless it reinforced selling decisions.
Trinh advised currency investors to keep a close watch on the equity market, but said the worst was not necessarily over.
Burke said equity markets could experience a continued period of uncertainty, as it would take a while to unravel the risks in the US sub-prime market.
- with REUTERS
