KEY POINTS:
This time last year it would have been a rare day that saw the sharemarket drop by more than 1 per cent.
Now it's happening regularly. In the last 20 trading days alone 12 have been in the red, one saw no change and only seven were positive.
Since the sharemarket peaked in October last year nearly $15 billion has been wiped off the value of New Zealand's top 50 listed companies as investors search for safer havens.
What began as a credit issue in the United States has spiralled out into the global financial markets resulting in a rise in the cost of inter-bank borrowing and a clampdown in higher risk lending.
Early estimates put the cost of the credit crunch at over $1.5 trillion.
At the same time New Zealand has suffered its own financial woes with 24 finance companies hitting the wall in less than two years resulting in many retired Kiwis losing hard-squirrelled away savings.
Reserve Bank Governor Alan Bollard's cash rate hikes have finally seen the property bubble burst and oil and other commodities are hitting new peaks.
New Zealand, with the rest of the world, is coming to terms with climbing inflation due to higher oil and food costs.
Times are going to be tougher for almost everyone - unemployment is growing and even top company executives face pay freezes.
Retailers are being squeezed to their limits as consumers close their wallets and along with other businesses are struggling with rising costs.
Yet some believe there are still opportunities to make money.
"The way we see it is that the economy has more than stalled - we are in more or less freefall - the Reserve Bank seems to be the last player to comprehend that," Brook Asset Management's Simon Botherway says.
"The economy is going to head lower - interest rates are going to head lower and on that basis there will be some cheap stocks in the New Zealand market."
Mint Asset Management chief executive Rebecca Thomas agrees.
"Generally speaking our view is that while we would never say never to there being a bit more downside, our view is that we are pretty close to the bottom.
"If you have a strong stomach for volatility, which we will undoubtedly see more of over the next few months, now could be a good time to start investing."
Thomas, who runs an Australasian equity fund, has been holding cash levels of around 25 per cent for the last few months but is now looking around for potential buys.
She says her overriding focus for finding good businesses to invest in is very much stacked on their balance sheets.
"We want to know a business can sustain their dividends out of cashflows."
That means no borrowing to pay investors.
Although much of the bad news from the credit crunch has already come out, Thomas fears some of the pain has yet to be seen in New Zealand.
"In New York and London businesses are realising it's not just the cost of refinancing that is an issue but the ability to get finance at all."
She believes businesses able to carry out their expansion plans without having to go to the bank will be best placed to deal with the downturn.
On a sector level Thomas thinks listed property trusts are very cheap and says in general terms high quality exporters are also looking favourable.
Now that recession has been officially recognised analysts believe there is growing pressure on the Reserve Bank to cut the official cash rate.
A cut is expected to put downward pressure on the dollar meaning an automatic uplift for companies that earn in US dollars.
Some say the odds are 50-50 on the rate being lowered this month while others predict a later cut in September or even December.
Fisher & Paykel Healthcare is being picked as one to watch and Thomas believes winemaker Delegats may also see the benefits of a fall in the dollar.
Tyndall Investment Management equities manager Rickey Ward says as well as looking for companies that have supportive cashflows he looks for businesses that produce something people want but may have been beaten up through poor sentiment.
"No one rings a bell at the top or the bottom. But a lot of companies appear to be hugely undervalued.
"It's hard to say whether it is the right time to buy. But it wouldn't hurt to start slowly acquiring good companies that have been beaten up on external factors that shouldn't have an impact on their longer-term performance. I'm not saying pile all your money in today - there's likely to be further volatility over the coming months and maybe further downsides."
One sector Ward thinks is appealing is energy. "Everyone needs power in good times and bad."
He says the key areas to avoid are any businesses involved in the consumer discretionary sector. "Everyone is painting a bleak picture there."
But not all are convinced it is the right time for punters to make their move. "When you can get 9 per cent at the bank it's silly to look at an alternative unless you have a real conviction," says Milford Asset Management's Brian Gaynor. "Overseas, people think we are spoilt with our interest rates. I still think the stockmarket is in for a bit of a rough time."
He says many of the problems have come through credit expansion and borrowing where increases in property valuations have allowed people to borrow against their homes and spend up big.
"The core of the problem is in the finance, house building and retail sectors. It's inevitable if you were part of the boom you are going to have negative impacts when it implodes. Anything associated with those three core areas will take a long time to recover."
But, he says, there are areas outside of those where companies who did not participate in the boom now have the potential to do well, such as agriculture, energy and healthcare.
The problem, he warns, is that while many may seem undervalued now the August reporting season is likely to bring more bad news and possible share price falls.
Gaynor says it's hard to know how long the bear market will last as long-term share prices generally rely on strong company earnings and those earnings are affected by the economy. "The downturn could last for three possibly four quarters."
But an increase in takeover activity or a drop in the New Zealand dollar could be signs that the market is turning.
"The general view is that the dollar will fall from where it is at the moment. The upturn could come through the export sector. But it all comes back to earnings - when the economy shows signs of picking up then we will see signs of earnings improving. It may not be a quick turnaround.
"I would wait till I saw concrete evidence that either the dollar was dropping or the domestic economy was improving. This to me is not just a short-term correction."
TOP STOCK PICKS
* F&P Healthcare
* Sanford
* New Zealand Oil & Gas
* Contact
* SkyCity
* Guinness Peat Group
* NZ Windfarms
* Ryman
* Delegats
WHAT'S IN FAVOUR
* Strong companies with export potential
* Primary industry (includes agricultural, mining and oil)
* Energy
* Healthcare
* Infrastructure
* Listed property trusts
WHAT'S NOT IN FAVOUR
* Retail
* Finance
* Building and construction
