NZX prepares for dip after China rout

Listings on the main board have dropped off, with only one company Fliway Group listing on the exchange, after a flurry activity of last year, fuelled in part by the government's sell down of its utility companies. Photo NZME.

Fund managers expect the New Zealand share market to open lower this morning but for the reaction to yesterday's rout on Chinese stock markets to be muted.

World share markets weakened overnight in response to an 8.5 per cent decline on the Shanghai composite index - its sharpest one-day fall since 2007.

In the United States, worries about China helped drive the Dow Jones Industrial index down by 128 points, or 0.7 per cent to 17,440 - its fifth drop in a row.

"The direct impact downunder is mainly via the hard commodities stocks, which New Zealand does not really have much of - with the exception of Oceana Gold," Matt Goodson, managing director of Salt Funds Management, said.

"The Chinese market has gone vertical over the last year, so if you look at it, it is still considerably higher than where it was a year ago," he said.
The local market, with its high proportion of dividend-yield stocks, typically reacted less violently to big swings on world markets.

"New Zealand tends to be a low beta market due to its composition," Goodson said.
"It tends to be driven by the flows that happen to be in the market on the day, so I would not expect the contagion effect (from China) to be huge," he said.

Shane Solly, portfolio manager and research analyst at Harbour Asset Management, expected to see local shares trade lower when the market opens at 10 am.

"It's reasonable to expect that we will see market volatility increase, and that we will see a weaker opening," he said.
Solly said the Chinese economy continued to make a transition away from a capital-intense economy to a consumption-focused economy. "What it means for capital markets is increased volatility," he said.

On Monday, the NZX50 Index dropped by 22.12 points to 5872.06 on Monday, led by weakness in the major power companies.