KEY POINTS:
- Which way do you think the NZ sharemarket will go now?
Wall St's mortgage market woes have taken a more than $3 billion toll on the New Zealand sharemarket.
In its seventh consecutive negative session yesterday, the NZX-50 closed 47 points or 1.16 per cent down at 4075, its weakest close since late March.
At one point early in the session it fell to 4024, below its opening at the beginning of the year.
The drop extends the NZX-50's losses since US sub-prime problems spread to other markets on July 27 to 5.8 per cent, taking more than $3 billion off the value of top stocks.
The New Zealand drop follows Wall St's fall on Friday after investment bank Bear Stearns said credit markets were in their worst shape in 20 years.
The Standard & Poor's 500 Index and the Nasdaq Composite Index had their worst one-day percentage drops since the February 27 equity rout, related to the Shanghai sharemarket slump.
"It's all overseas influences leading to a general rout," ASB Securities head of advisory Stephen Wright said.
He said the NZX selling, although not in great volumes, was across the board.
"There will be plenty who sell because this is the seventh day of falls in a row and they just want out, there will those panicked by the overseas falls, and at the margin there will be some people who are selling because they are leveraged."
ABN Amro Craigs operator Matt Willis said much of the selling was probably coming from overseas as investors moved to hold gains threatened by the falling New Zealand dollar.
Overseas investors would probably have "some very good unrealised currency gains", and it was logical if the currency was turning, to lock them in.
The New Zealand dollar fell to US75.99c yesterday.
Willis said the local market had been driven up by the international money looking for a home.
Short-term market direction was now likely to be set by market fundamentals such as the earnings revealed in the corporate reporting season, which has just begun.
Westpac chief economist Brendan O'Donovan downplayed the prospect of wider economic fallout from the week of sharemarket losses.
Traditionally events in the US had a direct effect on the economies of other countries, he said.
But he believed that relationship had been weakened as other large fast-growing economies, such as China, generated their own momentum.
"Has the rest of the world got the self-generated growth to withstand a US slowdown?" he asked.
"I think it has, but that's the big question markets are asking themselves. Naturally they are taking a bit of risk off the table until they find out the answer.
"In times of uncertainty like this, New Zealand's always near the forefront because we're treated like a riskier economy.
"Markets are rightly more apprehensive, but if the old adage that 'If the US sneezes the rest of the world catches cold' doesn't hold any more - and I don't think it does - then we'll be looking back on this in a few months as a buying opportunity."
