NZ shares tumble on interest rate concerns

12 September 2016 05:42 PM

MARKET CLOSE: NZ shares tumble on interest rate concerns; Tower, Fletcher fall

By Sophie Boot

Sept. 12 (BusinessDesk) - New Zealand shares plunged in the biggest sell-off since before Brexit, joining a global rout on concerns interest rates are set to rise and high-yielding companies will be hardest hit. Tower, Fletcher Building and Air New Zealand led the decline.

The S&P/NZX 50 Index dropped 188.84 points, or 2.5 percent, to 7,279.76. Within the index, 48 stocks fell, one rose and one was unchanged. Turnover was $131 million.

The local index's fall followed a Wall Street selloff on Friday after US Federal Reserve officials made comments which sparked fears of a rate hike as soon as next week. Markets across Asia fell this afternoon, though losses in the high-yielding NZX 50 outpaced those of Australia's S&P/ASX 200, Japan's Nikkei 225 and China's CSI 300.

"All of the types of companies and assets which have benefited from very low interest rates over recent years went in the other direction, and that's probably why we've followed suit to a greater degree than the other markets in this region," said Mark Lister, head of private wealth research at Craigs Investment Partners. "We've been one of the best-performing markets of the year, our market's just gone up and up, it's really priced to perfection and due for a bit of a pullback. Also, many of the companies on the market are the high-yield dividend payers, and those are exactly the type of companies that stand to be the biggest losers from interest rates around the world going up."

Tower was the worst performer on the local index, falling 5.9 percent to $1.04. The shares slumped last week after the general insurer warned it expects to have to fork out more for Canterbury earthquake claims and signalled it will review its dividend and its dividend policy at its full-year earnings result.

"It's having another rough day after a very rough week last week," Lister said. "It was the weakest stock in the NZX 50 last week, off 17 percent, and it's off again today. It continues to be out of favour as investors are still digesting that bad news."

Stocks fell across the board, and Lister said that while you would expect growth companies such as Fletcher Building, which dropped 4.4 percent to $10.61, or Air New Zealand, which fell 5.4 percent to $1.935, to be sensitive to market movements, more solid income stocks were also falling.

"When you've got these high-dividend-paying stocks which have been flavour of the month for a very long time now, going higher and higher as investors chase high dividend yields, the big risk for them is what happens if there's a turn in the interest rate cycle," Lister said. "You'd expect them to be holding up the best, but they're not, and that tells you a lot about why the market's having such a bad day - people are thinking about interest rates and what happens to companies which have been beneficiaries of low interest rates if they go up."

Meridian Energy dropped 4 percent to $2.88, Chorus fell 3.3 percent to $4.05, and Spark New Zealand dropped 3.2 percent to $3.63.

The only stock to gain was Investore Property, which rose 0.6 percent to $1.62.

Outside the main index, GeoOp fell 23.1 percent to 25 cents. The management app developer said it plans to raise $3.6 million in a discounted rights offer.

The NZAX-listed company will issue up to 17.9 million new shares at 20 cents apiece, a 38 percent discount to where the shares traded before the announcement of 32.5 cents. The shares recently traded at 25 cents, matching the record low reached earlier in the year. The stock sold at $1 in its initial public offering in October 2013 and soared as high as $4.49 in November of that year.

"It's a negative announcement and not a great day to do it, but it'd be getting pounded anyway," Lister said. "They're going back to investors to raise more money at a cheap price and they're not really doing it because they've got growth ideas, they're doing it as a defensive mechanism to get the balance sheet in order."

Pushpay rose 0.4 percent to $2.38. The mobile payments app developer will raise A$40 million as part of a secondary listing on the ASX in October in an effort to open up the shares to US investors.

(BusinessDesk)

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