“We do not expect that degree of sell-off by any stretch of the imagination, but we have pretty much no meaningful outperform ratings [for yield-sensitive NZX-listed stocks].”
A 10 per cent drop over the next 12 months was more realistic, he said, although he wasn’t forecasting that per se.
For a deeper correction to occur, he said the market would need to re-establish its historical relationship with long-dated bond yields.
“Today, that relationship has pretty much totally broken down.”
The US 10-year yield hit a 16-year high of around 4.8 per cent this month, although that has come off slightly, and the NZ 10-year was sitting above 5 per cent, a 12-year high. Typically, that puts downward pressure on equities.
The NZX was one of the most interest rate-sensitive markets in the developed world, he said, because many of the companies listed on it were tied to real assets, such as commercial property, ports, telecommunications and power generators.
“It does look strange to us how little the equity market has reacted to to what’s happening in in in the bond market.
“In our view it is a little bit of a stand-off at the moment.”
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Madison Reidy is the host of New Zealand’s only financial markets show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
