Trade on world sharemarkets has been volatile on the back of trade uncertainty. Photo / Getty Images
International trade uncertainties hang over the local stock market, even though New Zealand is not yet directly affected.
This week, the White House gave United States carmakers a one-month reprieve on tariffs on imports from Mexico and Canada.
Markets have been volatile after America’s imposition of 25% tariffs on imports from Canada and Mexico, and an additional 10% on China.
“It matters for our exporters, because the US is our second biggest market,” said Shamubeel Eaqub, chief economist at Simplicity.
“But it’s not yet clear what, if any, tariffs will be imposed on NZ exports.”
Eaqub said that the likely effect of tariffs on China, New Zealand’s largest trading partner, was a concern.
While there has so far been no direct impact on New Zealand, there are questions about how it will affect Fisher and Paykel Healthcare (FPH), the country’s biggest stock by market capitalisation ($20 billion).
Trade issues have weighed the stock, and the market overall, with the S&P/NZX50 index dropping by about 5% since the start of the year.
FPH makes about 45% of its volume in Mexico and 55% in New Zealand. In the first half of its financial year, 43% of the company’s revenue came from the US.
About 60% of FPH’s US volumes are supplied from the company’s substantial manufacturing facilities in Mexico.
The company does not currently anticipate a material impact from the announced tariffs on its net profit after tax for the 2025 financial year but said costs in the 2026 financial year would likely increase.
Jarden analysts said in a research note that uncertainty prevails on the world trade front.
The news flow in this space remained “somewhat of a roller coaster” in terms of the timing and magnitude of tariffs.
“If implemented, our prior analysis highlighted a 25% tariff would result in FPH additional costs of about $100m to offset through a combination of price increases, some volume rebalancing and potentially some foreign exchange benefits.”
Jarden expects any price increase response by FPH would need to be substantial and mostly shouldered by its hospital business.
The broker has maintained its “underweight” rating on FPH shares.
“We acknowledge the quality of the FPH business model, long duration growth prospects and track record on execution.
“But on our standing growth estimates, which remain pre-any potential tariff disruption and include target business model growth, we struggle to justify valuation support via our discounted cash flow-based 12-month theoretical price of $30.10, and hence maintain our underweight rating.”
Jarden said key risks for FPH were the pace of clinical change, disruption from alternative therapies, NZ dollar volatility and tariff implementation.
Rabobank said the US’s relatively small trade deficit with New Zealand had so far helped keep New Zealand food and agri exports off the US trade tariff “wheel of misfortune”.
But the bank says the tariff threat remains.
The US trade deficit with New Zealand was just over US$1 billion for the period from January to November 2024.
Over that timeframe, the value of NZ exports to the US was roughly 25% higher than for US imports heading this way.
“The US’s immediate focus has been on other countries with much larger trade deficits, but that doesn’t mean New Zealand is out of the woods given the new US administration’s stated desire to balance trade deficits.”
Ratings agency S&P Global has downgraded its outlook for Spark from “stable” to “negative”.
The move followed the telco’s weaker-than-expected half-year results and warning that full-year earnings were tracking toward the bottom end of guidance, which was revised down in October.
S&P reaffirmed its “A-” long-term and “A-2” short-term credit ratings but added, “Spark’s commitment to a capital structure that supports the ‘A-’ rating is being tested, in our view.”
Spark’s net debt increased by $297 million to $2.74b in the first half.
S&P noted $160m of the extra borrowings went toward debt-funded dividend payments.
“Weaker earnings and cash flows, along with an increased debt burden, weigh on the company’s creditworthiness,” S&P said.
Over the past two years, Spark’s adjusted debt (including lease liabilities) increased significantly, partly due to paying dividends exceeding free cash flow and elevated capital expenditure.
Spark’s updated earnings and capex guidance “indicates that current distribution cash outflows are likely to be greater than free cash flow levels, stymieing efforts to sustain the credit metrics at a level commensurate with the rating,” S&P said.
Its rating included the expectation that Spark would take measures including non-core asset sales, reducing capex, achieving cost-savings from restructuring initiatives (where Spark was far behind analyst expectations in the first half) and raising up to $1b through a capital partnership to fund data centre expansion (the goal to raise $1b was first announced last August; there was no update at the telco’s interim result).
“Although Spark’s net debt has increased in the last year, management remains committed to reducing debt levels by improving earnings and free cash flow and reviewing the ownership of non-core assets,” Spark CFO Stewart Taylor said in an NZX filing on the S&P downgrade.
“Since the announcement of our H1 25 results we have completed the sale of our remaining stake in [cell tower network spinoff] Connexa, which delivered cash proceeds of $311 million and will be used to reduce our net debt.”
In October, Spark said its remaining 38% stake in the Southern Cross Cable and its majority stake in identity management start-up Mattr were “non-core.”
Shares were recently trading at $2.25. The stock is down 55.1% over the past 12 months.
Fonterra has poured cold water on speculation that Aussie food group Bega has first right of refusal over the assets it has put up for sale.
The Australian newspaper said Bega is in the spotlight over Fonterra’s $2b-plus asset sale, with some wondering whether the process will result in a merger deal where the ASX-listed buyer embarks on a major equity raising mid-year.
“One option being floated is that Bega acquires the Australia and New Zealand business, Fonterra Oceania, which is part of the overall suite of assets on offer that has been rebranded Mainland Group,” The Australian said. It added that a concern for bidders was that Bega has first right of refusal on the assets.
Asked for comment, Fonterra said: “The Australian column is speculative and inaccurate.
“We can confirm that Bega does not have a first right of refusal or any other pre-emptive rights on the assets being divested,” it said.
Fonterra said it does have an agreement with Bega to license the Bega brand on some products.
“We have filed legal proceedings to confirm the terms of this agreement are not impacted by a divestment,” it said.
The recently-completed Australian reporting season was one of the most volatile results season in years from a share price reaction perspective, Robbie Urquhart, Fisher Funds senior portfolio manager - Australian Equities - says.
JP Morgan estimates that more stocks moved up or down on results day by more than three standard deviations compared to average - the largest dispersion in 20 years.
It wasn’t that results were “bad” across the board, Urquhart said.
“The majority of companies reporting in fact delivered earnings in-line or above expectation. Those that missed earnings expectations were punished,” he said.
“Part of this reflects that market valuations were modestly elevated compared to history.
“Part of it also reflects the changing structure of the market – blind, passive and quantitative driven capital, makes up a larger part of the market than 20 years ago, and is more prone to respond to shifts in near-term earnings momentum,“ he said.
- Additional reporting Chris Keall
- Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
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