Market takes collapse in stride

News of South Canterbury Finance going into receivership failed to put a serious dampener on the New Zealand stock exchange yesterday, with it outperforming markets overseas.

The NZX 50 closed down 0.7 points at 3026.10, recovering from a 15-point fall, ahead of Australia's S&P ASX 200, which was down just over 1 per cent.

Hamilton Hindin Greene client adviser James Smalley said the $1.6 billion paid by the Government to cover investors in the failed Timaru-based finance company had brought certainty to the NZX.

"You could say some of that [outperformance by the NZX] was due to positive sentiment from the removal of uncertainty with the South Canterbury situation," he said.

Smalley said there would be a positive flow-on effect from investors suddenly having money to reinvest as a result of the payout.

Banks, however, might be the main beneficiary should investors spooked by their South Canterbury Finance experience decide to stash their funds in term deposits.

"But for people whose advisers are a little bit proactive you might well see that money coming into the [equity] market ... we might also see a bit of buying in the bond market as well."

Craigs Investment Partners client investment adviser Belinda Stanley said the New Zealand stock exchange took the news of the receivership "in its stride" yesterday.

Shane Solly, a portfolio manager at Mint Asset Management, agreed that yesterday's payout had given certainty to the market, but said there was also a level of "moral hazard" in the Government's response.

"There have been investors buying or investing in South Canterbury Finance on the basis that the Government would bail them out - and that is indeed what's happened," he said. "When you make an investment there is always a risk attached and in this case that risk has been worn by taxpayers."

The fact that investors essentially got bailed out meant they might not have learned anything from the experience and may make similar mistakes in the future, Solly said.

Stanley agreed, saying: "Maybe people don't learn if they just get paid their money back."

Westpac senior market strategist Imre Speizer said news of the South Canterbury Finance receivership had a "very negative" impact on the New Zealand dollar.

By 5pm, the kiwi had dropped to US70.30c from US71.05c.

There could be lingering impact on the kiwi, Speizer said.