KEY POINTS:
The New Zealand sharemarket's soggy start to 2008 turned even uglier yesterday following another US market retreat that has fuelled concerns that the world's largest economy is heading for recession.
The NZX-50 ended yesterday 57 points, or 1.45 per cent, lower at 3953.58 after notching up smaller losses during its first two days of trade for the year last week.
The local market opened lower yesterday after big falls on Wall St on Friday, and its losses were extended when the Australian market opened and also fell sharply in early trade.
In the United States, the benchmark Dow index closed 2 per cent lower on Friday while the Nasdaq was down 3.8 per cent after US payrolls data showed a softening in the US job market and unemployment hitting a two-year high of 5 per cent.
Already shaken by the sub-prime issue, over recent days US markets have also been slugged by oil prices hitting US$100 a barrel and from data showing manufacturing unexpectedly contracted during December.
Economists and market analysts are still divided on whether the US economy will fall into recession this year, but virtually no one is completely discounting the possibility.
Here in New Zealand, top stocks bore the brunt of the sell-off with Fletcher Building down 19c at $11.19, Contact Energy down 8c at $8.32 and Telecom down 7c at $4.24.
"There does appear to be a bit of pressure on the stocks, which are probably held by some of the larger regional/global investors who are looking to liquidate some of these near term event stories," said Shane Solly of Mint Asset Management.
However turnover was relatively thin at $65 million, and Solly said there was little sign of urgent selling.
He believed New Zealand's market had not exhibited the same degree of exuberance during the period leading up to the current situation and was therefore not as vulnerable to a sharp correction as other better-performing markets.
"The vast majority of our businesses are reasonably conservative. They're generally in industries where there's some level of certainty and their balance sheets aren't overly stretched. Boring is good."
Nevertheless, he expected to see further bouts of volatility originating from US markets as the year wore on.
"The next three to six months in particular are going to be reasonably hard work."
In its 2008 equities market outlook published last week, broker Forsyth Barr predicted markets would shake off the sub-prime issue and other challenges over the year to post good gains.
"Despite global concerns surrounding a credit crunch, we believe the emphasis on this risk will abate over 2008 and the fundamentals are in place for a relatively strong performance from the emerging markets and the multinational companies out of the US and UK."
Forsyth Barr acknowledged the "short-term risks", but added: "We believe the current fundamentals for the New Zealand equity market, in the absence of any earnings shock, is supportive of a target gross return for 2008 of more than 15 per cent."
EQUITIES RETREAT
* New Zealand shares have once more been dragged down by losses on Wall St.
* The NZX-50 closed 1.45 per cent lower yesterday following a 2 per cent fall by the Dow on Friday.
* Australian stocks were also battered, falling by just over 2 per cent in afternoon trade.
* The NZ dollar was also hit by the US equities retreat, falling more than half a cent to a two-week low of US76.30c.
