KEY POINTS:
The local sell-off is largely being driven by overseas investors who own about 40 per cent of our stocks, says New Zealand Stock Exchange chief executive Mark Weldon.
"US investors and investors more broadly with exposure to the US market which is going down, don't want to show an unmitigated loss in their portfolios so have liquidated profit positions here.
"Our market has done very well over the last five years ... so you're seeing people sell and lock in those profits and because of the global uncertainty, there's not a lot of people sitting there with big wallets on the buy side."
Meanwhile, ABN Amro Craigs retail adviser Bryon Burke said his firm was receiving more sell orders from clients this week.
"I guess to a certain degree that's because it's been front page news. People are saying: 'Gosh, the market's off we'd better sell some shares,' it's self-perpetuating really.
"It hasn't taken too much volume or orders to push prices lower because there are no buyers."
But before too long investors would be looking for pockets of value where stocks with high price to earnings ratios or with foreign exchange exposure had taken an undue hammering.
"People will start picking the eyes out of what's fallen the most and where the value lies.
"Things are starting to get a little bit cheaper now and so yes, we will have a rally and there is money out there.
"Another big fall will get prices down to really good value."
So far the market retreat was not a disaster, said Burke, adding: "It's better to get it over with quickly rather than spending six months creeping lower.
"Unfortunately we just have to grin and bear it until they've finished their sell-off overseas."
Weldon noted that there was little news or evidence that New Zealand corporates were significantly affected by US problems.
"For the retail investor to get into a panic you would have to believe there was something going on in the bowels of the New Zealand corporate sector."
Whether or not that was the case will be revealed when companies report December period earnings from February onwards.
"I think this will be the most important corporate earnings season for a while."
The timing of the US losses had been a crucial factor in the local market's losses, he said.
"You've got the bad overseas news and a New Zealand vacuum, that combination is not helpful."
But while gloom currently pervades equity markets, the market's losses are not necessarily a harbinger of wider economic pain.
In New Zealand the sharemarket represents a far smaller proportion of the overall economy than in most other developed countries and is therefore a less accurate barometer of economic prospects.
Crucially, it excludes any meaningful exposure to the key export earning dairy sector which will pump large amounts of cash into the economy thanks to high dairy commodity prices on international markets.
Moreover, a number of commentators make the point that if New Zealand's economy is threatened or actually softens, the Reserve Bank has plenty of scope to cut interest rates to get it moving again.
However, money markets are not pricing in significant expectations of such cuts this year. Indeed at least some market watchers such as Westpac chief economist Brendon O'Donovan are predicting further interest rate increases.
However Weldon sees the prospect of a continued hawkish stance from the RBNZ at the same time the US Federal Reserve is slashing interest rates to ward of recession as presenting perhaps the most worrying economic risk.
"If you were to see a situation where US interest rates fell, and ours rose and that differential got even bigger than it is now, you could see our exchange rate sit above US80c for a good period of time and that would rip the guts out of the export sector."