NZ share market poised for weaker open after volatile US trade

Wall Street stocks have been volatile after last week's stronger than expected jobs data. .

The New Zealand share market was poised to open an estimated 2 to 3 per cent down this morning after Wall Street stocks thrashed around in a 1000-point range in extremely volatile US trading, which fed through to all major share markets overnight.

By mid-morning the Dow's Industrial Average was making a comeback, rallying by 520 points to 24,873 after earlier falling to a low of 23,778. The session's peak was 24,858.
The local market's opening at 10am coincided with Wall Street's close.

Fund managers, noting the Australian market's 3.2 per cent decline, said a commensurate drop on the local market looked likely given the market's closure for Waitangi Day yesterday.

Matt Goodson, managing director at Salt Funds Management, said an element of catch up was likely when the market opened this morning.

"Initially we would expect it to be down relatively hard," he said.

Goodson said it appeared the Australian market, with a number of New Zealand stocks listed there, was likely to set the scene.

"But to put it into context, the US market is only back to where it was in mid-December," he said.

January had been "incredibly strong" for the US share market, which had only been followed to a modest degree by New Zealand and Australian stocks.

Likewise the Australian share market, after this week's losses, is now back to where it was last October.

Share markets around the world have been bolstered by several years of very low interest rates, low inflation and strong earnings growth.

"Perhaps there will be a welcome return to valuation fundamentals," Goodson said.
"We have been in this 'Goldilocks' scenario for several years across most markets," he said.

"We are finally at that point where I think that that Goldilocks scenario may well be coming to an end," he said.

The last time New Zealand had a "down" year was in 2011.

Since then, per year gains have ranged from 9 per cent to 24 per cent.

On Monday, the NZX50 dropped by 2.1 per cent.

Brad Gordon, an investment adviser at Hobson Wealth Partners, said he expected the New Zealand market to be down another 1 or 2 per cent today.

He said the New Zealand market was an interest rate-sensitive, with investors flocking to dividend-paying stocks in the wake of low interest rates in recent years.

But with rates expected to rise that could see utility stocks like the power companies and telecommunication companies take a hit as investors seek other ways to making money.

Gordon expected any reaction on the NZX to be short-lived because the fundamental data remained strong - the New Zealand economy was doing well as were overseas economies.

He said the falls in the US markets had been compounded by a strong run.

Gordon said the volatility in the markets was nowhere near what was seen during the global financial crisis.

Rickey Ward, head of equities at JBWere, said he expected the New Zealand market to be down today but how much was anybody's guess.

In other markets it had been a broad-based sell-off.

Ward said growth stocks could be affected more because they had bigger multiples applied to their valuations at the moment.

"How do those multiples stack up versus the market and history?"

Ward said he expected it to be mainly retail investors who sold, driven by fear and panic in reaction to the US markets. That could mean trading volumes would be lighter.

It was harder for institutional investors to sell because they owned a bigger amount of stocks which could be hard to sell quickly.

Ward said investors should keep in mind that the New Zealand market had gone up more than 20 per cent last year and had six years of double-digit returns.

"So to give up 10 per cent is not the end of the world, but it is never pleasant."
- Additional reporting Tamsyn Parker